By Anna Driver
DALLAS (Reuters) - Exxon Mobil Corp defended hydraulic fracturing at its annual shareholder meeting on Wednesday, even as investors peppered CEO Rex Tillerson with concerns and questions about the technology.
A shareholder proposal requiring greater disclosure by Exxon on the risks and impact of its hydraulic fracturing practices was voted down by about 70 percent of the world's largest publicly traded oil company's shareholders.
Hydraulic fracturing, or fracking, is a process of injecting a mix of water, chemicals and sand into the earth to break up rock like shale, in order to release oil or natural gas. Environmentalists say the technique can contaminate groundwater with dangerous chemicals, but the industry has long insisted it is safe.
Criticism has heightened as shale drilling rapidly accelerates in basins around North America.
Tillerson acknowledged risks associated with fracking, but said Exxon is working to bring together regulators in states where shale drilling is occurring to examine current rules and take a look at those that are most effective.
"We know there are risks," Tillerson told reporters after the meeting. "We're not trying to characterize this as an activity that does not have risks."
He said the debate should be "fact-based," and said there were claims about the 50-year-old technology that had no basis in fact.
To help combat what it considers misinformation, Exxon meets with local officials and politicians and is running a national advertising campaign aimed at addressing concerns about fracking.
Regulators in states where shale drilling is growing at breakneck speed "are stretched," but rules governing fracking should remain at the state level, not federal level, Tillerson said.
Exxon made a $35 billion bet on shale gas when it purchased XTO Energy in 201O. The company aims to double its U.S. natural gas production in a decade, Tillerson said.
Investors and influential proxy advisory firm ISS criticized Exxon's compensation practices ahead of the meeting, arguing the oil company's shareholder returns do not justify executives' pay packages.
A jump in oil prices had much to do with the stock's run-up, and the stock rise was not entirely reflective of the company's performance, ISS said in a May report.
Tillerson's total pay rose 6.6 percent in 2010 to $29 million.
Exxon defended its executives' pay arguing, among other factors, that ISS' recommendation is "fundamentally flawed" because it relies too heavily on the short term.
"Financial results and stock market returns are best viewed over some period of time," Tillerson told the meeting.
A majority of shareholders voted for an annual review of executive compensation. Exxon had recommended that a vote take place every three years.
The company's three-year total shareholder return was a negative 5.8 percent and lagged peers, the ISS report said, adding that a $100 investment in Exxon at the end of 2006 was worth only $104 at the end of 2010.
A proposal for an independent chairman at the company received 31 percent of votes cast, up slightly from 30 percent in 2009. Shareholder proposals require majority approval for passage.
"We can see there is inherently a problem of potential conflict of interest if Mr. Tillerson chairs the board," Sister Patricia Daly, who spoke on behalf of the proposal for an independent director, said at the meeting.
Other shareholder proposals related to oil sands, greenhouse gas emissions and water management, also failed.
Exxon shares were up 1.2 percent at $82.27 on Wednesday afternoon on the New York Stock Exchange.
(Reporting by Anna Driver, editing by Matthew Lewis)