Special Focus on Independent Oil & Gas
Kirk Sherr, President and Managing Director, Regester Larkin Energy North America
As we look at recent trends in the principal emerging markets, we see three trends that every independent should have clearly in focus on their “license to operate” radar: environmental, social and human rights issues. Of course each market is different, and the capacity of the company to address the issues will depend in part on size, but they should at least be aware of the potential risks and have a plan in place to face them.
First, environmental risks and issues will continue to grow in importance worldwide and they present one of the biggest challenges for independent oil and gas companies, particularly those that are heavily involved in water- intensive unconventional plays.
Water handling, waste-water treatment, disposal/storage, and management will be in focus worldwide. Note that regardless of whether or not industry wins the international debate over the impact of hydraulic fracturing on groundwater, the priority should be to develop pre-emptive industry practices and safeguards against real water contamination accidents. Offshore drilling is another area where independents may face significant liabilities and exposure, particularly in emerging markets. As a recent incident in Brazil has demonstrated, regulators drawing lessons from BP’s Gulf of Mexico debacle are increasingly likely to impose harsh fines and penalties on all operators and service companies with perceived or real responsibility for any accident. Same can be said for rapidly developing Artic drilling operations. Are independents, with such stretched personnel remits, truly prepared for similar circumstances in their far-flung operations?
Social issues are a second big challenge facing Independents in 2012, as governments seek to impose great obligations on companies in their relationships with local communities, tribes and potentially impacted groups where operations are located. The “boomtown syndrome” from the influx of oil company money and workers leads many host communities to confront rapid social change, imported inflation, and strained capacity of public infrastructure and services. Man camps with 24 hour electricity and a high standard of living – only inside the fence – can call even more attention to dire local conditions. Independents are in danger of underestimating the medium to long term implications of their commitments to these communities. The internet and social media in opening societies will accelerate the risks independents face.
Finally, human rights issues, broadly interpreted, will be a third challenge as they begin to appear in select markets. To date, this has not been an issue in developed markets like the UK, US and Canada because they have strong human rights governance. But, as 2012 develops, we expect human rights risks to become much more relevant in markets like Asia, Africa, and Latin America. Consider for example, the exposure independents may face for alleged human rights violations from security forces or even for aligning with the “wrong side” in countries where regime change has been accompanied by considerable violence.
At minimum, independents will need to be well-prepared for heightened scrutiny from the international NGO community, in part emanating from the June 2011, adoption by the United Nations of the Guiding Principles on Business and Human Rights. The Guiding Principles dictate a general framework for the responsibility of business in protecting human rights. As a recent report from the Heinrich Boell Foundation highlights, there is a push for governments to mandate corporate adoption of the Guiding Principles, posing a potential threat to many independents license to operate.
As experienced independents know only too well, the above-ground risks to their license to operate for international operations increase every year – and 2012 will not be an exception.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Tanya Nash, Partner, Corporate, Ince & Co LLP
From the legal perspective I think the most interesting issues will come from the continuing judicial and regulatory fallout from the Macondo incident and earlier incidents such as Buncefield in the UK.
The willingness of US and UK courts and regulators to look behind the contractual structures when issuing Incidents of Noncompliance, imposing penalties and liabilities and when developing new regulatory responsibilities alter the analysis of risk in the standard contractual arrangements.
This applies both (i) as between operators and non-operators and (ii) as between operators and contractors. To meet these challenges industry participants need to adhere to the following:
Drillers and Dealers :::
::: February 2012 Edition
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