PHILLIPS 66 | Audited report on asset retirement obligations of assets with indeterminate lives at PHILLIPS 66

Status
Withdrawn
AGM date
Previous AGM date
Resolution details
Company ticker
PSX
Lead filer
New Jersey Pension Fund
Resolution ask
Report on or disclose
ESG theme
  • Environment
ESG sub-theme
  • Climate change
Type of vote
Shareholder proposal
Filer type
Shareholder
Company sector
Energy
Company HQ country
United States
Resolved clause
Shareholders request that the Board of Directors issue an audited report that describes the undiscounted expected value to settle obligations for AROs with indeterminate settlement dates. The Board should obtain and ensure publication of the report by February 2024 at reasonable cost and omitting proprietary information. To allow maximum flexibility, nothing in this resolution shall serve to micromanage the Company by seeking to impose methods for implementing complex policies in place of the ongoing judgement of management as overseen by its Board of Directors.
Whereas clause
The State of New Jersey Common Pension Fund D, located at P.O. Box 290, Trenton, NJ 08625, has notified Phillips 66 that it intends to present the following proposal at the Annual Meeting. The State of New Jersey Common Pension Fund D has indicated that it holds 260,940 shares of Phillips 66 common stock in accordance with the requirements of Rule 14a-8. Oil and gas companies are legally required to decommission certain long-lived tangible assets at the end of their useful life. The obligations associated with doing so are recognized as Asset Retirement Obligations (AROs) by the Financial Accounting Standards Board. The demand for refined products such as gasoline is anticipated to decline as alternative sources of energy become more widely adopted, whether because of consumer demand, government directives, or other forces. As a result, the time to decommission refineries will likely come sooner than anticipated.
Yet, investors have little insight into the associated costs of such decommissioning. AROs are critical accounting estimates, yet useful detail on midstream and downstream AROs is not included in the Company's financial reports due to uncertainty about the timing of decommissioning. According to the Company's most recent annual report, it owns 12 refineries in the U.S. and Europe, which have a new crude throughput capacity of approximately 2 million barrels per day. We appreciate that the Company discloses some information in its most recent annual report about its recognized AROs. However, for those unrecognized AROs, the Company states "[w]e believe that generally these assets have no expected retirement dates for purposes of estimating asset retirement obligations since the dates or ranges of dates upon which we would retire these assets cannot be reasonably estimated at this time.” Rising climate transition risks and responsive corporate climate strategies make it reasonably possible that near-term changes in legal or economic conditions could materially accelerate realization of these liabilities. If companies choose not to recognize the fair value of AROs on grounds that assets have indeterminate lives, it is imperative that they disclose the undiscounted costs to settle these material off-balance sheet liabilities. Absent this information, investors cannot assess the true risk-adjusted value of their investment nor deploy capital effectively.
Supporting statement
In the Board and management’s reasonable discretion we recommend such report also include: (1) a range of potential settlement dates based on each asset’s estimated economic life, (2) probabilities associated with the potential settlement dates, with due consideration given to the potential impact of the energy transition away from fossil fuels, and (3) whether, based on known information, it is reasonably possible that these assumptions and estimates will change in the near term.

How other organisations have declared their voting intentions

Organisation name Declared voting intentions Rationale
CoreCommodity Management, LLC For

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