BUSINESS SPECTATOR (UK)
As well as difficult terrain and remote locations this work can involve dealing with different cultures and even managing local concerns.
But, as the head of one major company argues, there is a better, more ethical way to safeguard projects than pouring money into security.
Peter Botten (pictured), managing director at Oil Search, which has a market capitalisation of around US$10billion and is headquartered in Papua New Guinea, argues that much of its success comes through working closely with local communities and levels of government, building strong relationships and ultimately establishing a social licence to operate.
The company was incorporated in Papua New Guinea in 1929 and is now its largest oil and gas producer, but also operates in places such as Kurdistan and Tunisia. With the main concentration of oil and gas in the country’s highlands, exploration was difficult in Papua New Guinea until helicopters were available to navigate the difficult terrain and remoteness of the operations.
In the 1990s Oil Search began major oil and gas developments there, and is now working on a major liquefied natural gas (LNG) project expected to start production in 2014 that will approximately quadruple its annual gas production figures. It plans to extend this work in the future.
Botten says: “In 1992 the company started to reinvest and build its business in Papua New Guinea. Acquisitions included buying BP out of the country in 1998, buying ChevronTexaco’s PNG assets and taking over operatorship of the PNG oil fields in 2003. Since that time we have had substantial growth.
“Our growth is to the credit of the quality of the assets, but also to the stability of operations in the country. Papua New Guinea has always been our speciality, in terms of supply chain, infrastructure and geology. We also have a particular strength when it comes to working with local communities.”
The company is closely tied to local communities by various factors. Communities in exploration areas receive royalties and equity in the projects, meaning they are often directly involved in the work.
Botten says: “Papua New Guinea has an unusual fiscal regime. The communities in which we work take a minimum 2 per cent interest in any new petroleum development, including LNG projects. That makes them joint venture partners. They are direct equity-holders and therefore take an ownership in what we do, and are incentivised not to disrupt our projects.”
He notes that this, and the company’s wider work with the community, is an approach taken over investing heavily in fences and security guards. He says: “We work very closely with the communities to provide them with benefits in terms of training, education and health services.
“You can’t supply enough security or the rule of law in these remote areas.” In 2012, the company invested US$11.9million, either directly or indirectly, in community development, with almost half of that going to health programmes through its Health Foundation.
“It’s also very hard for a developer with any social conscience to turn someone away from the gate if they have a broken leg or are pregnant and about to give birth. Companies elsewhere tend to spend a lot more than we do on fences and security. We spent more money on co-operation and integration. That’s just part of our DNA.”
In 2011 Oil Search formalised its community health programmes by establishing the Oil Search Health Foundation, which Botten describes as “our social licence to operate”.
A cornerstone of the foundation is its public-private partnership with the country’s Department of Health to help with HIV and AIDS treatment. But the foundation also has dedicated programmes to combat malaria tuberculosis and improve maternal, child, and reproductive health services.
Botten is also an advocate of the Extractive Industries Transparency Initiative (EITI), which aims to strengthen governance by improving transparency and accountability in the extractives sector. “We actively advocated the government to adopt EITI principles and to manage wealth appropriately through the establishment of a sovereign wealth fund,” he says.
“I think the challenge is to let people know how much money is coming in so communities can hold their government to account; EITI addresses that.”
Oil Search believes the EITI provides companies with a means for engagement with stakeholders by promoting a more transparent business environment which, over time, can assist in minimising corruption in extractive industries.
A government’s commitment to EITI implementation sends a strong signal to the global investment community about that country’s commitment to transparency.
Greater awareness by local communities about government revenues from the extractive industries can help mitigate social tensions and lead to improved public accountability and public stability. Together, these aspects promote investor confidence.
More companies will seek natural resources abroad in the future. But success may need more than guards and fences.