Exxon Mobil Corp. and Chevron Corp. shareholders rejected proposals yesterday calling on the companies to disclose more about the environmental hazards tied to natural gas drilling. But activists and corporate governance groups pressing the oil giants said pressure is building on drillers to be more responsive to public concern about "fracking" in U.S. shale gas basins.

Twenty-eight percent of Exxon shareholders and 41 percent of Chevron shareholders supported proposals asking the boards to explain more about the business risks associated with hydraulic fracturing. During the process, more commonly referred to as "fracking," drillers inject water, sand and chemicals at high pressures into dense formations, unlocking gas supplies trapped under Texas, Louisiana, Arkansas and a vast swath of the Northeast.

While the proposals were soundly defeated, their sponsors said the double-digit support suggests major investors are concerned that public scrutiny and environmental cleanups could slow gas production and cut into shareholder returns.

"That just shows there's a ton of mainstream institutional support for this," said Michael Passoff, a senior program director at the shareholder advocacy group As You Sow, based in San Francisco.

"These are not 'green' investors. These are long-term institutional investors who are holding these companies for the long haul," Passoff said. "They want to make sure that fracking is done right. They see this as a growth area, and they see that companies are shooting themselves in the foot."

Oil and gas drillers for decades have been using horizontal drilling and hydraulic fracturing in a more limited way to extract resources. But public scrutiny has rapidly increased in the past two years as energy companies search for gas in places like Pennsylvania and New York, well outside of traditional oil and gas country in Texas and Louisiana.

With tens of thousands of wells expected to be drilled in the coming years to feed rising U.S. demand, the industrial process of drilling 8,000 feet underground has raised issues about potential chemical contamination of groundwater, disposal of toxic mud and air pollution.

The shareholder resolutions brought the environmental issue to the doorsteps of Exxon and Chevron board members. But the future of U.S. natural gas development is becoming a hot-button issue in Washington, as policymakers and groups concerned about global warming recalibrate their general support for gas use in order to account for mounting environmental issues.

At a forum yesterday sponsored by the conservative American Enterprise Institute, economists and environmental policy analysts said the growing North American gas bounty is a significant future resource, but there are still a lot of questions to be answered before there's broad public buy-in.

A cleaner resource with 'a lot of unknowns'

"We need more science, and there are a lot of unknowns," said Amy Mall, a senior policy analyst with the Natural Resources Defense Council.

On one hand, gas is the cleanest fossil fuel when it is burned to generate electricity. It has half of the greenhouse gas footprint of coal and slashes toxic air pollutants. Increasingly, however, researchers are raising questions about the "life cycle" impact of producing and using gas, an area where there are limited data and research. U.S. EPA is also conducting a study, mandated by Congress, examining how the production process affects water supplies.

This is the second year that As You Sow and a handful of other shareholder activists have campaigned for corporate resolutions demanding more information on the gas production process.

Exxon became a big target once it made itself the largest U.S. gas producer after spending $30 billion to buy gas producer XTO Energy last year. This year, for the first time, Chevron got hit with a shareholder proposal that it disclose more about the drilling and hydraulic fracturing process. Chevron recently bought Atlas Energy, a Pennsylvania-based gas producer, and is expected to increase its foothold in the U.S. gas market.

This year's proposals received additional support from two well-known corporate shareholder advisory groups, Institutional Shareholder Services Inc. (ISS) and Glass Lewis & Co., both of which supported the proposal to Chevron.

Glass Lewis did not support the proposal submitted to Exxon shareholders.

In its recommendations to Chevron shareholders, ISS said the resolution is warranted "because the company does not provide substantial details relating to its specific management of the risks associated with its hydraulic fracturing operations, despite the fact that the industry is facing increasing public, regulatory and legislative pressures."

The proposal submitted to Exxon called on the company to take measures "beyond the existing, inconsistent regulatory requirements." It also called on Exxon to produce a report by October detailing "known and potential environmental impacts" of hydraulic fracturing operations and possible policy options to slash related air, water and soil pollution.

Is state regulation better?

"Proponents believe these potential environmental impacts and increasing regulatory scrutiny could pose threats to ExxonMobil's license to operate and enhance vulnerability to litigation," said the As You Sow proposal.

Exxon and industry groups including the American Petroleum Institute insist that hydraulic fracturing is a safe process. They argue that no instances of groundwater contamination are on record, all regulations should be left to the states, U.S. EPA is overreaching in its study of the drilling technique, and public disclosure of chemical use is adequate.

In its recommendation to shareholders, Exxon emphasized its points about state regulation. "Hydraulic fracturing is highly regulated at the state level to effectively protect drinking water wells and groundwater aquifers," it said.

Exxon CEO Rex Tillerson and the Exxon board have been answering tough questions about their big investment in gas production. U.S. gas is selling at rock-bottom prices, and costs for securing land and extracting shale gas could go up. In the meantime, public angst about the drilling technique used to extract the gas is grabbing headlines, magazine covers and movie screens.

According to Reuters, Tillerson reportedly acknowledged the risks of fracking to reporters gathering after Exxon's annual meeting in Dallas. He said Exxon is working with state regulators to examine existing rules. Tillerson also vigorously defends the push into natural gas, arguing that it could replace coal as the biggest energy source after oil.

For its part, Chevron also recommended a "no" vote to shareholders. It also said state regulation was adequate and it follows industrywide best practices on well construction.

Critics of the idea that the regulatory role should be confined to states alone contend that drilling states haven't had the resources to keep up with the drilling boom. Too few inspectors are on the ground, and rules are outdated.

"We're a big believer in market mechanisms," said Mark Brownstein, deputy director of the Environmental Defense Fund national energy program. "In this case, you want to look for ways to work with industry to help change the industry culture."