Social license to operate needed

The North American shale revolution has completely changed the visibility of oil and gas operations, throughout the world. Shale development is attractive for most countries, because it can increase domestic supply (with the potential for exports) and displace the use of coal or liquid hydrocarbons. The economic impact (job creation, capital expenditures, revenues to the state) provides positive benefits. Two of the most impressive benefits include the economic impact of low-cost natural gas on the economy, and the sharp decrease in greenhouse gas emissions, due to decreased reliance on coal-fired power plants.

However, there are real environmental challenges to drilling nearly 40,000 complex wells annually, including traffic, noise, air pollution, spills, water usage, overloaded rail transportation, etc. Our industry has done a poor job of communicating the positive impacts of energy development and addressing societal concerns. It should not surprise anyone that large-scale industrial activity has impacts on society, and the unconventional revolution isn’t isolated to a few centralized locations.

The social license to operate (SLO) is much more than permits, and we don’t get such a license by filling out forms or paying a fee. It takes more than money and P.R. to be a part of the communities in which we operate. As important as technical challenges are, the opportunity to solve those challenges may be irrelevant, if we fail to obtain and maintain our SLO.  Without an SLO, technical and financial decisions may be irrelevant. Without maintaining the SLO, ongoing production and project profitability are endangered. The primary risks to the SLO are environmental impacts from activities, the perception of those impacts, and effective, open communications with a broadly defined community.

Thomson and Boutilier (2011) developed a model of the SLO, based on studies of mining activities and the surrounding communities. The SLO is essentially the perception of a company and its activities, based primarily on the affected communities. For shale development activities, this should be expanded to include those who believe that they may be affected, whether directly or indirectly, and this discussion refers to community in a broad sense. Their model has four levels of the SLO hierarchy. The lowest (withheld/withdraw) is the de facto status in several U.S. states, including New York, and many countries (e.g. Germany and France) with significant unconventional resource potential.

Much of the opposition to such activity specifically targets fracing. The result of the withheld SLO doesn’t always mean oil and gas activities are immediately shut down; however, this lowest level of SLO generates protests, boycotts, shareholder resentment, and legal actions, along with the potential for violence or sabotage. Another consequence of a very low-level SLO is that increased regulatory scrutiny often results in the removal of the formal license to operate.

The next higher level of SLO to operate is acceptance/tolerance. The model shows that moving from withheld to acceptance implies that activities pass the “legitimacy” boundary. Acceptance brings continued examination of activities, involvement of external groups, and the need for improved communication and relationships. Community acceptance should not be confused with approval or support, which is the next level in the SLO hierarchy. Approval implies that oil and gas development is viewed with some sense of pride and that a level of trust has been developed. Approval is often accompanied by a positive economic effect for the community, but this benefit is insufficient to pass the credibility boundary, to go from acceptance to approval. At the approval stage, the community implies that communications are truthful and effective, and that they comply with acceptable practices and long-term engagement.

The highest level of SLO is psychological identification and implies the trust of the community. At this level, the community has gone beyond cooperating and is identifying positively with the operating company and its activities. There is both technical and social credibility, which implies a very high quality of relationship. There are many oil and gas communities, who are at the acceptance and approval levels of SLO and some areas of psychological identification.

Gaining and maintaining high SLO levels doesn’t happen because of a series of transactions, but rather as a result of the quality of relationships. It is unlikely that the most ardent opponents of oil and gas activities will ever be convinced of their legitimacy. However, effective communications, community involvement and safe, environmentally sound activities will convince many communities of the legitimacy and credibility of activities.

Finally, we as oil and gas professionals must do a better job communicating our values and our commitment to providing safe, affordable energy. Energy really does improve people’s lives, and our industry is a vital, important part of society. There are many excellent sources of information, including the Society of Petroleum Engineers’ www.energy4me.org, that offer factual information to assist you in communicating with your friends about energy, fracturing, offshore activities, etc.