Petroleum companies crossing new threshold in community relations

• Shown is a tree nursery at Nuevo Mundo, a community in Shell Prospecting & Development (Peru) BV's Camisea project area, where seedlings are grown for use in restoring natural vegetation at wellsites. In addition to the environmental benefits, such projects in the Amazon River basin also can serve as the basis for microenterprises for indigenous communities to enhance their self-sufficiency, rather than relying on one-time compensation in cash or goods from oil companies seeking access to their lands. Photo courtesy of Shell. [79, 272 bytes]

As local communities in remote regions demand a share in the benefits of petroleum development, international companies are often called upon to provide basic education, health care, and other services that normally fall within the domain of regional or national governments. But how do oil companies know that their community programs are effective? And how much is enough?

Many senior managers are still asking another question: Why should private companies take on this job, which lies far afield from their core competencies and objectives? In large measure, the answer can be found in a growing body of policies, regulations and procedures (such as International Labor Organization Agreement 169) that require oil companies to negotiate with local landowners or communities for access to their lands-even when these companies have already received permission from central governments to develop subsurface oil and gas resources.

Shifting expectations are also forcing exploration and operations managers to overcome the comforting fiction that, if they stick close to their contract terms (which usually require the Energy Ministry to provide access to native territories), everything will work out. Increasingly, governments throughout the Amazon basin expect oil companies to manage this aspect of their business just as they manage other aspects. Government intervention is now seen as a last resort, not as a quick fix for company shortcomings.

Beyond such expectations, many company managers feel that helping nearby communities is, as one of them put it, simply the right thing to do. "We're going to be here for the next 20 or 25 years," he noted. "We need to develop good long-term relationships with our neighbors so that everybody can benefit."

No more pay-as-you-go

This situation started to change in the early 1990s, particularly in Latin America. As U.S. and other foreign companies began to look for oil in and around the Amazon basin, they discovered that "uninhabited" exploration blocks were usually occupied by dozens of isolated Indian communities.

In Peru and parts of Ecuador, these communities-even very remote ones-frequently belonged to political organizations (usually called "federations" or "associations") that had emerged in the 1970s and 1980s to win legal title to native lands. Naturally, federation leaders looked to foreign companies, which generally operate under contract to national governments, as a source of other essential services. In effect, this trend has tended to shift ROW compensation from individual cash payments to communal benefits, such as schools and clinics.

Of course, not all companies have chosen to negotiate with local villagers or provide community benefits. Over the past 2-3 years, half a dozen major exploration projects in Latin America have been interrupted or faced significant delays due to conflicts with villagers or regional federations.

In Latin America, most countries have developed "eminent domain" procedures to resolve such disputes and set compensation rates. Implementing these procedures in distant and hostile areas is another matter. Among country managers, a consensus is emerging that the delay and cost of resolving local conflicts significantly outpaces the expense of investing in effective long-term relationships before problems occur.

Keeping score

• Virtually all of these companies have developed a "phased approach" to their community relations efforts. That is, they offer modest assistance during seismic exploration (say, a new schoolhouse and educational supplies), while agreeing to provide greater benefits as their involvement in a project increases. In effect, they negotiate a "sliding scale" akin to royalty payments that are triggered by key project milestones: seismic acquisition, exploratory drilling, development, and production.
• The "pay-as-you-go" approach to ROW negotiations has been replaced by extensive consultation with local communities, often beginning long before seismic exploration gets under way. Most often, such consultation is carried out by community relations specialists-anthropologists, rural development workers, forestry experts, or agricultural economists-with extensive experience in target regions. These professionals, few of whom have worked previously in the oil industry, focus on enlisting long-term community support for petroleum activities that will survive the inevitable misunderstandings and challenges that will arise along the way.
• Many companies have also formalized community involvement in their environmental impact assessment (EIA) procedures. By asking community members to help collect social and economic data, and by holding open meetings to review draft EIA documents, oil companies are rewarded with far greater "buy-in" from local residents while meeting heightened external expectations for transparency and public participation. The outcome: significantly less community opposition during the project approval process and a sharply reduced likelihood of criticism from major environmental and human rights groups.
• Whereas many companies are increasingly willing to open an early dialogue with local communities, a few have also begun to forge closer relationships with other "stakeholders," primarily non-governmental organization (NGOs). In Ecuador and Peru, for example, Royal Dutch/Shell, Mobil Corp., and ARCO have agreed to allow NGOs and/or Indian groups to serve as environmental monitors on their exploration and development projects. Some companies have formed advisory panels with NGOs, academic scientists, and "third-party" specialists. A large number of them meet from time to time with environmental organizations and provide updates on their progress. As a result, these companies are often able to resolve potential controversies around the conference table, not in the news media.

A consensus emerges

With important variations, this has led to a significant and largely unintentional convergence of strategies, meth- odologies, and tactics among companies that have never consciously pursued common approaches. Most community relations programs now emphasize the same goals and follow an almost identical cycle of informational meetings, planning workshops, seminars, and other activities.

Early experience with these programs has produced two striking similarities. Most community relations managers now agree that their activities must avoid encouraging long-term dependency on company support. Early on, several companies fell into a pattern of meeting community demands for outboard motors, bags of cement, and other things in payment for ROW access. As their projects progressed, the "wish list" grew endlessly-without significant improvement in local living standards.

Most community relations specialists now recognize that this approach was wrong. Instead, they place greater emphasis on helping local communities to identify their own long-term needs and plan for the future. They have learned to strike a balance in their ROW negotiations between meeting immediate demands-for outboard motors or bags of food-and supporting economic initiatives that will yield sustainable results. Hence, emphasis has been placed on training rather than on give-aways, on providing seed capital for new microenterprises, and on creating employment opportunities outside of company operations.

The other point involves staffing. Most companies now place these negotiations in the hands of experienced community development professionals, not public relations types. In Peru, for example, Chevron Corp. and Shell have hired well-known anthropologists to design and implement their outreach programs. And ARCO's community relations manager in Ecuador formerly directed the U.N. Food and Agricultural Organization's regional office in Quito for many years. Other examples-particularly in South America, but also in Africa-come readily to mind. In each of these cases, development specialists have been incorporated in EHS departments as full members, not temporary consultants.

Conclusions about community relations

• Senior management commitment is everything. Virtually all EHS and community relations managers agree that support from high-level company officials is essential for outreach efforts to succeed. Negotiating with native groups-even gaining access to them for the first time-can be a frustrating and time-consuming process that requires patience and flexibility. In contrast, exploration and development managers often feel that they must meet short, rigid timetables to maximize their resources and minimize expenses. This inherent conflict can only be sorted out by senior executives who are willing to risk raising initial costs or incurring a few months' delay rather than see their projects get bogged down for years in a major international controversy. As one EHS manager observed, "If you get the commitment and the resources early, project schedules become more achievable. You find out that you can manage your business within reasonable time frames and you also end up with community support that is essential to your 'license to operate' in indigenous communities."
• You need to have the right team. Hiring a single anthropologist or community relations expert is certainly better than not hiring one, but it is unlikely to permit the kind of intensive, sustained interaction with multiple communities and other stakeholders that is usually required to build durable relationships (except, of course, where only a few villages are involved). Most companies in South America have evolved toward a similar format: one senior anthropologist or social scientist with hands-on experience in the rain forest supervising three or four on-the-ground specialists who meet continuously with indigenous groups, provide information, and serve as an open channel of communication back to company managers. The main qualification for team membership: specific knowledge of the people living in your area of operations.
• Consultation is not part-time; it's a full-time commitment. Oil and gas projects in the Amazon basin are subjected to scrutiny by a broad range of stakeholders, from local villagers to members of the European Parliament. This scrutiny becomes even more intense when isolated or "uncontacted" groups (native communities that have chosen to avoid contact with outsiders) are involved. Establishing continuing relations with these stakeholders and listening to their concerns requires a full-time effort and often becomes a significant part of the EHS or country manager's job. It also requires openness and transparency, defined by one senior official as "providing anything that people want in whatever quantity they need." The mechanisms of such consultation vary from company to company: NGO advisory panels, periodic one-on-one briefings for interested environmental and human rights groups, large workshops with multiple participants. Whatever mechanisms are used, successful companies are the ones that devote the necessary resources to these tasks and ensure the right outcome.
• Don't be afraid to listen. Few E&P companies arrive in the Amazon with prior experience in indigenous relations and stakeholder consultation. EHS professionals agree that the quicker they start learning, the better. One EHS manager put it this way: "We didn't know what we were doing when we started. But we established a clear commitment and policy. You have to go out and do this to learn." Of course, hiring the right team of specialists and advisors is essential and can avoid a lot of unnecessary misunderstanding.

This perspective has recently been incorporated in guidelines developed by the Oil Industry International Exploration & Production Forum (E&P Forum), London, entitled, "Principles for Impact Assessment: The Environmental and Social Dimension" (OGJ, Aug. 18, 1997, p. 27). Members of the E&P Forum task force responsible for the guidelines observed that the EIA process itself offers an invaluable opportunity to collect detailed socioeconomic data-information that can be extremely useful in putting together an effective community relations plan. The key to this step lies in allowing enough time to do the job well. In most cases, it's also the first major opportunity to begin a serious dialogue with communities and other stakeholders in new areas of operation. Increasingly, many companies are recognizing that these opportunities should not be missed: They can mean the difference between a challenging project that gets done on time and one that doesn't get done at all.

The road ahead

E&P companies in the Amazon region have generally decided to approach community relations in the same way. They are setting business and even ethical objectives-minimal delay for E&P projects, real long-term benefits for communities-and then identifying development initiatives that will achieve these objectives.

One case in point involves Shell's Camisea gas project in Peru. Before beginning this ambitious venture, senior managers at Shell Prospecting & Development Peru BV decided that their community programs would focus on a concept that they called "net benefit," which was intended to address indigenous fears that the fruits of Camisea development would flow to coastal cities like Lima, leaving the unwanted impacts behind. They then began an extensive planning process to determine which projects and activities would produce the greatest net benefit for the region.

In our view, the next step in this process will involve sophisticated analysis of the program activities themselves. Over the past 50 years, a legion of development institutions-from the World Bank to private charities-have supported community projects in Latin America, Africa, and Asia. Evaluation of such projects has been a minor industry among specialists for more than a generation. Without reinventing the wheel, oil and gas companies must draw on this experience to understand whether they are actually improving education or health care by building more schools and clinics, or whether investments in economic projects are lifting household income. At least one company, Occidental Oil & Gas Corp., is moving in this direction.

Whatever the future holds, it probably won't repeat the past. As isolated rural communities are drawn into modern markets, demands for basic services will certainly grow. And as oil and gas companies venture farther off the beaten path into these distant regions, they will face new and challenging responsibilities-as challenging as the technical ones that they have successfully mastered in Alaska and the North Sea.

The Authors

Robert Wasserstrom, president of the Terra Group in Houston, has spent more than 25 years working with native communities, environmental groups, and other stakeholders in Latin America and the U.S. He served as vice-president of public affairs at Browning-Ferris Industries in Houston before founding the Terra Group with Susan Reider in 1993 to help energy companies manage their stakeholder relations. He holds a master's degree and PhD in anthropology from Harvard University.

Susan Reider, vice-president of the Terra Group, has more than 20 years of legislative and political experience. She has worked extensively with non-profit organizations and assisted energy companies to win local support for major capital projects. At present, she is advising several oil companies in Latin America. She holds BA degrees in public communications and political science from Syracuse University.

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