Oil Firms In Environmentally Sensitive Areas Learning To Balance Stakeholder Interests

Robert Wasserstrom, Susan Reider
Terra Group Inc.
Houston

Of course, other factors (including brighter prospects elsewhere) played a significant role in the company's decision. Even so, this event began a sea change among international oil and gas companies operating in the Amazon basin.

Above all, it has forced them to recognize a broad range of previously unacknowledged "stakeholders" in their overseas activities: native communities, regional and national Indian federations, local environmental activists, and their foreign supporters.

As Conoco's experience shows, these stakeholders are capable of causing significant project delay or additional expense-not to mention large bruises to a company's reputation. Many companies are now learning to balance the often competing goals of oil production with rain forest conservation, community development in remote areas, and the increased "transparency" demanded by watchdog groups in the U.S. and Europe.

Environmental issues

The environmental part has been relatively easy.

Most major companies have adopted some form of the "offshore model" as their basic approach to rain forest development.

They are committed to using helicopter-supported exploration programs, extended-reach directional drilling and clustered wells, and other low-impact techniques in order to avoid disturbing forest canopy, fragile root systems, and local species.

The Exploration & Production Forum's 1991 guidelines on oil development in tropical rain forests provide indisputable evidence of an industry-wide commitment to careful stewardship of sensitive environments.

Meanwhile, teams of design engineers constantly "push the envelope" to adapt new technologies or modify existing practices that will minimize damage to surrounding ecosystems.

Despite these advances, vocal opposition to further exploration and development continues from many environmental and indigenous leaders in countries such as Peru, Colombia, and Ecuador (see South America Report, (OGJ, Apr. 21, 1997, p. 37). In response, international companies have often assumed that increased technical virtuosity would more or less automatically translate into increased public confidence.

Faced with skepticism or questioning, they have given the logical answer: "We have tried to identify all likely impacts and have written a detailed management plan to address them. And your own government has agreed by approving our environmental permit."

Such responses ignore one critical fact: Most activists believe that Third World governments deliberately low-ball environmental requirements to encourage development. Unfortunately, invoking government regulation sounds evasive, not "transparent"-a problem that is often reinforced by official reluctance to make environmental impact assessments and other documents freely available or to allow meaningful public involvement in the review process.

Rethinking strategies

Under these circumstances, many companies are rethinking how to achieve their objectives in the Amazon region and other sensitive environments worldwide.

Like it or not, they are beginning to recognize that they must develop a more sophisticated understanding of the social and economic environment in which they plan to work-even in remote jungle areas. They are learning to tell their own story more aggressively to a broad range of local organizations and to forge alliances far beyond their official "customers" in the state oil company or energy ministry.

Another important lesson lies in recalibrating our thinking about risk. Traditionally, good exploration projects have handled money like Uncle Scrooge. Given the low overall probability of finding oil or gas, exploration managers generally try to minimize expenses-and seldom even consider spending money on "soft" problems like community relations.

During the past 10 years, many oil and gas companies have found that this is an expensive choice. Environmental contractors or seismic crews have been detained or chased out of exploration areas at least half a dozen times recently in Ecuador and Peru, often causing significant impact on project schedules.

Meanwhile, companies that have been willing to spend modest amounts at the outset have met their goals with far less conflict or interruption. Equally important, such companies have been able to span the yawning gulf that usually separates their own exploration and operations units and take a long-term view of project risk that is vital for success.

Recommendations

Here are some overall recommendations that in our view are essential for oil and gas projects in the Amazon region and, with appropriate modifications, in other sensitive environments around the world:

First, create a win-win relationship with neighboring communities. Many companies wait until seismic programs or other work has begun before talking with nearby Indian communities. This is a mistake and almost invariably has led to significant delays (or worse). Often, it's not even legal. A large majority of exploration blocks in the Amazon region includes lands that have been deeded in one form or another to native communities or mestizo settlers since 1970. Most Latin American countries require or allow compensation for damages to trees, streams, crops, and other resources on titled lands or reservations but have no formal procedures for determining what that compensation should be. (Most of them also signed International Labour Organisation Convention 169, which similarly demands compensation.)

Rather than face unpleasant surprises, oil and gas companies should begin discussions with neighboring communities as soon as they arrive in the host country and be prepared to take responsibility for these relationships throughout the project's lifetime.

Increasingly, when company representatives meet with Indian leaders for the first time, they find that native communities expect far more than a few dollars for each tree that is cut. Often, the demands include schools, roads, clinics, outboard motors, chain saws, cattle, and long-term economic assistance.

Most companies have adopted a phased approach to these negotiations: During several weeks or even months of discussion, they help community members understand that economic assistance must be tied to project investment and that investment rises through a series of stages. The goal of such discussions usually involves hammering out a modest agreement for compensation or aid during seismic exploration and creating a mechanism for addressing basic local needs (health care, education, improved income levels, better diet, etc.) later on.

How should these discussions be conducted? Some companies have hired anthropologists or other specialists with experience in community development and first-hand knowledge of lowland communities. These specialists have worked with native villages to design innovative and realistic assistance programs.

And because most companies recognize that they will probably leave the region in 20 years or so (when contracts expire), such programs tend to emphasize training and self-reliance, rather than long-term dependence on oil operations.

Identify other stakeholders as soon as the ink on your contract is dry. In addition to neighboring communities, important stakeholders exist at three other "levels." Since 1970, native communities throughout the Amazon basin have organized local, regional, and national groups that are usually called "federations."

Originally created to support native land claims, these federations have become increasingly involved in providing strategic counsel to local villagers in their negotiations with oil companies. In many cases, they have also become important actors in their own right, with direct contacts via Internet to the Confederation of Native Organizations of the Amazon Basin (Coica), to international NGOs and news media, and to other organizations.

In Ecuador, for example, such federations have insisted on participating in meetings between company representatives and local leaders to ensure that economic benefits are shared by Indians outside of immediately affected villages. Many companies have even found that they must balance the often competing claims of regional federations and local villagers or that they must deal separately with federations and communities.

The third group of stakeholders in Amazonian countries includes major national human rights and environmental organizations, anthropologists and other scientists at local universities, and the national or regional (multi-country) offices of international NGOs.

Most environmental organizations in the area were originally formed in the late 1970s and early 1980s to preserve the rain forest and still maintain close ties with U.S. or European donors. Since 1988, their programs have tended to converge with those of older human rights and community development NGOs that often supported Indian land claims and self-help projects in the 1960s and 1970s.

Virtually all of these groups now see their role as encouraging "sustainable development" among lowland Indians while protecting the forest, although traditional conservation groups place considerable emphasis on preserving biodiversity and other scientific objectives. Meanwhile, local anthropologists and social scientists often advise indigenous groups and NGOs and maintain continuing ties with international research institutions.

The final group of stakeholders includes two overlapping communities: major international human rights and environmental organizations in the U.S. and Europe that are actively involved in Amazonian countries and academic investigators and scientists from institutions with continuing research programs in the region (for example, the Smithsonian). U.S.-based organizations play a key role in supporting NGOs throughout the Amazon region through financial contributions, training, and access to the international media. Scientific researchers provide expert opinion to reporters covering international companies that operate in sensitive environments, as well as to congressmen, multilateral institutions such as the World Bank, and other important opinion-leaders. We believe that companies must open broad channels of communication with such stakeholders and, where possible, involve them as advisors.

Finally, it is important to recognize that another group of environmental activists in Latin America has emerged over the past decade with ties to Rainforest Action Network, London-based Oilwatch International, and the Coalition for Amazonian Peoples and their Environment (the "Amazon Coalition").

Unlike traditional NGOs, these activists generally reject any possibility of oil development-particularly by foreign companies-in the rain forest or attach such restricted conditions to development that it becomes a practical impossibility.

Such groups have become increasingly well-organized during the past 5 years and almost invariably are the source of international bulletins and alerts issued over the Internet. Although several companies maintain an "open-door" policy toward them and continue to involve them in discussion, in our experience, meaningful exchange of information and perspectives has been limited.

Strategic plan

From the outset, design and implement a strategic plan to involve key stakeholders in your project.

Even companies that build strong relationships with local communities and develop a first-rate environmental management plan are likely to come under unfavorable scrutiny or attack by "rejectionist" NGOs or other critics.

After all, such groups share a fundamentally different view of oil development in the rain forest: In general, they want you to go away. Because they have little influence over national governments or local media in Latin America, they prefer instead to target their messages toward international audiences. And as the Conoco case shows, it is difficult to win support from more-moderate groups and legitimate scientific researchers once a hostile campaign has begun (see related article, p. 24).

The solution to this dilemma lies in developing a strategic plan to engage such groups before exploration programs begin-by identifying common interests, building a relationship of trust and confidence, and maintaining open-ended communication. For example, one major company has let contract to an international NGO to provide baseline environmental studies and to monitor the impact of its seismic program. Others have begun a discussion with environmental and human rights groups to identify "best practices" in environmental protection and community development, so that these may be more widely known and shared throughout the oil industry and the NGO sector alike.

The purpose of these initiatives is to forge alliances based on understanding-and on a respect for areas of unresolved disagreement-that can survive attack by a radical minority.

Who should you contact, what should you say, and when should you say it? These questions must be addressed in your strategic plan-essentially, the business plan for your stakeholder program. Although each company is different, here are four basic principles to keep in mind:

• Be first. Oil companies must become the first and best source of information about their projects. Otherwise, the void will probably be filled by project opponents. At that point, company representatives must spend their time denying misinformation, which does not necessarily lead to greater public support and trust.

• Be transparent. "Transparency" has become a buzzword among NGOs, particularly in Latin America. Essentially, it means providing reasonable and consistent access to project information-such as environmental impact assessments-even though local regulations or policy may not require (or in some cases may actually discourage) their disclosure. By taking the initiative to inform NGOs and other stakeholders, oil companies show that they have nothing to hide and are willing to engage potential critics. Such openness goes a long way toward winning respect and support.

• Anticipate criticism and preempt it. Surprisingly, this is not hard to do. Most opponents focus on known project milestones (filing dates, public hearings, etc.) to plan demonstrations or other headline-grabbers. By waiting for such events to occur, oil companies forfeit the possibility of shaping public perception about their project and put themselves on the defensive. Rather than "respond" to someone else's game plan, they should anticipate such milestones and create unfiltered opportunities to tell their own story. The goal: Make your critics respond to you, not the other way around.

• Third parties. Often, oil companies lack the credibility to assure a skeptical public that they maintain high environmental standards, are using the most appropriate technology, or have addressed community needs. In such cases, it is extremely useful to call upon academic scientists and researchers who are familiar with your operations and are willing to provide independent verification. Sometimes, too, such specialists can help if a community or group of communities refuses to meet with company representatives or to negotiate access to their land. All companies working in sensitive environments should develop a network of such specialists long before potential opposition arises.

Above all, the timing of strategic activities is essential. Once momentum is lost (as with Conoco), it is extremely difficult or impossible to regain. To put it another way: Nobody wins by playing good defense unless they play good offense, too. Effective public affairs programs, like other winning game plans, don't just happen; they require careful planning and first-rate execution.

Meeting the challenges ahead

Where do international oil and gas companies working in Latin America and other sensitive areas go from here?

In our view, several important challenges lie ahead:

• The first major challenge lies in nurturing and broadening the incipient relationships that have begun to develop between individual companies and moderate NGOs in the U.S. and Latin America. In general, both groups agree on the need to conserve biodiversity and to help local communities improve basic living standards. Each group can mobilize resources and expertise that are helpful to the other. And although their fundamental goals remain separate, these relationships could grow in any number of innovative ways.

• The second challenge involves a shift in the way most oil and gas companies analyze project risks. Increasingly, to be successful, such companies will need to overcome traditional divisions between "exploration risk" and "development risk" which are often invoked to justify "waiting until we know we have oil in the ground." This approach is a classic example of being "penny-wise and pound-foolish." In our experience, the cost of community relations and other stakeholder programs during seismic exploration in lowland South America averages around $50,000 (including the salary of a full-time anthropologist or other specialist). Standstill fees for seismic contractors that are not allowed to work on Indian lands have reportedly exceeded $500,000-in addition to whatever they receive once work begins. More and more, companies that understand this equation and are willing to take a realistic view of overall project risk will meet their deadlines.

• The third challenge lies in providing high-level support for stakeholder relations within oil and gas companies worldwide. Many companies have designed sophisticated education or agricultural programs in one country, while struggling to address similar issues across the border. Yet these companies maintain worldwide standards of health, safety, and environmental performance. We believe that the same approach should be followed with stakeholder initiatives: International companies must develop a corporate policy clearly outlining overall goals and objectives and then set guidelines for internal evaluation (similar to environmental audits). They must develop mechanisms to benchmark corporate "best practices" in community relations: After all, why should every country manager have to figure out how to support an education or health program? Moreover, these programs must meet external standards of sustainability, viability, and public participation that have been devised by recognized development agencies.

• Finally, many companies must master the art of transparency, particularly in countries that do not encourage citizen participation in environmental decisions. This is a tricky issue, because U.S. or European managers are often reluctant to meet with local NGOs or other stakeholders when they are told by government officials that to do so would show "weakness" or "panic." Overcoming such obstacles sometimes requires skillful negotiation and continuing discussion with government "customers," as do other aspects of overseas operations. But it poses essentially the same challenge as meeting internal environmental standards in countries that regulate themselves at a lower level. In most cases, host governments shrug their shoulders and let you proceed.

During the past 10 years, international companies have learned a tremendous amount about working with new stakeholders in their operations. So, too, have environmental groups and human rights organizations, which increasingly see such companies as good neighbors and potential partners in specific activities.

Copyright 1997 Oil & Gas Journal. All Rights Reserved.