Energy Transfer Partners and Banks Lost Billions by Ignoring Early Dakota Access Pipeline Concerns
Roughly four years ago, Energy Transfer Partners (ETP) filed a federal application to build a 1,172 mile oil pipeline from North Dakota’s Bakken shale across the U.S. to Illinois at a projected cost of $3.8 billion.
Before that application was filed, on Sept. 30, 2014, the Standing Rock Sioux Tribe met with ETP to express concerns about the Dakota Access pipeline (DAPL) and fears of water contamination. Though the company, now known as Energy Transfer, had re-routed a river crossing to protect the state capital of Bismarck against oil spills, it apparently turned a deaf ear to the Tribe’s objections.
Following that approach proved to be a very costly decision, a new analysis concludes, with ETP, banks, and investors taking billions in losses as a result.
“This case study estimates that the costs incurred by ETP and other firms with ownership stake in DAPL for the entire project are not less than $7.5 billion, but could be higher depending on the terms of confidential contracts,” a new report, “Social Cost and Material Loss: The Dakota Access Pipeline,” concludes, noting that the figure represented nearly double the initial project cost. “The banks that financed DAPL incurred an additional $4.4 billion in costs in the form of account closures, not including costs related to reputational damage.”
In addition, the company’s “poor social risk management” caused taxpayers and “other local stakeholders” to incur at least $38 million in costs, the report concludes.
“This is what it’s all about,” protestor says. “Sacred water.” Not sure guys on left agree. #NoDAPL #DAPL https://t.co/vHPRC2OHU5
— Wes Enzinna (@wesenzinna) 1477599122.0
As opposition to DAPL grew from a handful of locals to a movement attracting thousands of supporters to Standing Rock and backers worldwide, construction fell behind schedule and over budget, with costs rising from a predicted $3.8 billion to at least $7.5 billion, the new report finds. Over that time, Energy Transfer’s stock price fell 20 percent—at the same time as the tech investment index S&P 500 grew roughly 35 percent, the report noted. Energy Transfer’s stock also underperformed other companies in the same industry.
“Across the board, this project was out of line with the existing principles outlined in the United Nations Declaration on the Rights of Indigenous Peoples and other international standards for resource development near indigenous peoples’ lands,” Carla F. Fredericks, author of the study and director of Colorado Law’s American Indian Law Clinic, said. “The losses in this study underline that companies need to take those principles into account.”
Making a ‘Material Loss’
The study points to early decisions by ETP as the cause of those losses.
“The Standing Rock Sioux Tribe communicated their opposition to DAPL for three years and they were frustrated by the lack of meaningful consultation from Energy Transfer Partners (ETP), DAPL’s parent company, and the U.S. Army Corps of Engineers (USACE),” Fredericks, an enrolled citizen of the Mandan, Hidatsa, and Arikara Nation of North Dakota, and co-author Mark Meaney of the University of Colorado’s Leeds School of Business wrote. “In fact, those opportunities for early engagement were ETP’s, the USACE’s and other investors’ missed opportunities to understand the developing social risks that subsequently manifested into intense social conflict and ultimately resulted in material loss.”
US / indigenous rights: @UNSR_VickyTauli urges consistent policies for projects like Dakota Access Pipeline https://t.co/fVdVZtcsnG
— UN Human Rights (@UNHumanRights) 1488560268.0
When it comes to human rights issues, the report’s authors dismiss the notion that a company’s management can adequately protect shareholders from losses or liability if they use compliance with state and federal laws as their only benchmark.
“Unfortunately, the companies and financiers…
