CERAWeek 2014 - License to Operate: The Growing Importance of Stakeholder Engagement

Onshore unconventional oil and gas development has brought increased focus on strategies to preserve and enhance operators' social license to operate. As the unconventional revolution goes global, effective and proactive attention to stakeholder concerns will greatly influence the location, pace and scope of new development. In this session we bring together contributors with diverse perspectives on these issues and address the following questions:

1) What are best practices in stakeholder engagement and where can the E&P industry improve its existing practices? 2) What are current and emerging expectations from regulators, local communities and other stakeholders? 3) Are there lessons from other sectors which can be applied to the E&P industry

Andrew Slaughter, Vice President, Upstream Research, IHS, chaired the Wednesday morning Strategic Dialogue "License to Operate: The Growing Importance of Stakeholder Engagement." The panelists agreed that early and open communication is vital to successfully engaging with stakeholders, those affected by oil and gas projects. In addition, ongoing commitment from regulators and operators to share and disseminate information on best practices and encourage partnerships in communities where exploration and production (E&P) companies operate helps build positive stakeholder relations and leads to project success.

D. Clay Bretches, President, Sendero Midstream LLC, discussed how to ensure continued success with the job creation, economic growth, and energy security that the "Shale Gale" has brought to the United States. He noted that greater volumes of gas and oil are being produced, but rig counts are decreasing because of operational efficiency and greater area drilled per well. However, stakeholders are concerned about issues such as water recycling and disposal, aquifer contamination, surface impacts, and air emissions. Mr. Bretches said that creating regional centers of excellence is one of the best ways of ensuring positive stakeholder engagement. These centers help stakeholders to identify best practices, engage in two-way communication, disseminate information, and provide a platform for partnerships with nongovernmental organizations and the academic community. He said Colorado's Responsible Operator Council is an exemplary center of excellence.

Nate Teti, Head of Sustainability, Development and Production North America, Statoil, stressed the importance of finding shared values, engaging in open dialogue, and maintaining a certain level of transparency. The right strategy is to focus on a clear understanding of the issues with an approach that is tailored to the particular situation rather than formulaic. This strategy must be guided by local needs, the culture, and an understanding of the people involved. He said most operators are facing a "trust deficit" because the oil and gas industry is not always perceived positively by the communities in which it operates. However, building long-term relationships that are mutually beneficial can help to bridge this gap. Developing partnerships among government, businesses, community organizations, and academic institutions is vital, he noted.

Paul Jeakins, Commissioner and CEO, British Columbia Oil and Gas Commission, said partnering with trusted organizations within a community is a good way to engage positively with stakeholders. A recent survey by the University of British Columbia ranked universities among the most trusted groups, followed by experts and environmental nongovernmental organizations, with government and political organizations among the least trusted. To overcome this hurdle, his organization, which functions as the province's oil and gas regulator, takes a three-pronged approach to obtain input in the regulatory process at the operational (site-focused), tactical (basin-focused), and strategic (province-focused) levels. Mr. Jeakins said his organization focuses the most on getting input at the tactical level, which includes developing basin-level guidance, footprint analysis, and best practices. He noted the importance of getting input from the industry at the strategic and tactical levels so that new innovations are considered in regulatory decisions. He also stressed the importance of a way to get feedback to ensure stakeholders concerns are met.

Keryn James, CEO, Asia Pacific Environmental Resources Management (ERM), closed the discussion by providing specific examples of why it is important for operators "to get it right" when it comes to stakeholder engagement. She cited ERM analysis that looked at 169 oil and gas projects globally and found that 53% suffered delays, many of them because of nontechnical challenges such as environmental concerns and permitting. She noted that success in stakeholder engagement depends on industry performance, not just for individual companies but for industry as a whole, which is "only as strong as its weakest link." In addition, Ms. James said companies must gain a clear understanding of the stakeholder context, including the role of government, stakeholder capacity for engagement, and other emerging local issues. She noted that corporate commitment to early stakeholder engagement helps to maximize the value of all projects.

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.