“You don’t get your social license by going to a government ministry and making an application or simply paying a fee… It requires far more than money to truly become part of the communities in which you operate.”
– Pierre Lassonde, President of Newmont Mining Corporation.
The shale revolution in North America has completely changed the visibility of oil and gas operations, and not just in North America, but also 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 liquid hydrocarbons produced in unconventional plays are valued like conventional oil. The economic impact (such as job creation, capital expenditures, revenues to the state) provides positive benefits.
Although hydraulic fracturing is just one aspect of shale exploration, development, and production with the potential for environmental consequences, hydraulic fracturing (or “fracking” as its detractors refer to it) has become a focal point for activists’ protests and government actions. This blog entry is an excerpt from a soon to be published book on unconventional resources. This book has also discusses the social license to operate, the environmental consequences of unconventional oil and gas activity (which includes hydraulic fracturing), ways to mitigate environmental damage, and current US federal and state regulatory activities.
The first part of the discussion about environmental issues related to unconventional activities covers a topic that is rarely discussed in technical books: a social license to operate (SLO). However, the target audience for this book includes asset team members operating unconventional activities around the world, to which the topic is unmistakably important. Without a SLO, technical and financial decisions may be irrelevant. Without maintaining the SLO, ongoing production and project profitability are endangered. The primary risks to the social license to operate 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 social license to operate based on studies of mining activities and the surrounding communities. The social license to operate 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. A graphical depiction of their model (Fig. 1) shows four levels of the social license to operate hierarchy. The lowest (withheld/withdraw) is currently the de facto status in several US 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 “fracking ” or hydraulic fracturing. Some of this opposition arises from a 2010 film entitled Gasland that purports to show environmental damage from oil and gas operations and blames their actions for a host of environmentally damaging activities. The film is controversial and has numerous flaws debated elsewhere. The result of the withheld social license to operate doesn’t always mean oil and gas activities are immediately shut down; however, this lowest level of social license to operate generated protests, boycotts, shareholder resentment, and legal actions, along with the potential for violence or sabotage. Another consequence of a very low level of social license is increased regulatory scrutiny often results in the removal of the formal license to operate.
The next highest level of social license 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 social license to operate hierarchy. Approval implies that oil and gas development activities are 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 social license to operate 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 social license to operate and some areas of psychological identification.
Gaining and maintaining high social license to operate 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 the legitimacy of oil and gas activities. However, effective communications, community involvement and safe, environmentally sound activities will convince most communities of the legitimacy and credibility of activities. In the following discussions of environmental risks, challenges to the social license to operate will be reviewed.
Ian Thomson, Robert G. Boutilier, 2011, Modelling And Measuring The Social License To Operate: Fruits Of A Dialogue Between Theory And Practice
Thomson, I. and Boutilier, R. 2011. The Social License to Operate. In Darling, P.; SME Mining Engineering Handbook, Ch. 17.2, pp 1779-1796, Society of Mining Metallurgy and Exploration, Littleton, Colorado. (in Chinese)