Transform oil, gas industry culture to cut exploration risks: Research

Report comes on anniversary of Deepwater Horizon oil spill in the Gulf of Mexico

One year on from the Deepwater Horizon oil spill, the International Institute for Environment and Development on Wednesday (20 April) released a report that shows how growing risks associated with oil and gas exploration can be cut with a new approach to the way the sector manages its chains of contractors.

The report, which draws on three years of research and interviews within the sector, outlines seven key areas for action relating to the industry’s systems, procedures and – importantly – its culture. It highlights the key challenge of maintaining high environmental and social performance standards, even when speed and low cost of delivery are priorities.

Risks in the sector are increasing for two reasons. First, the industry is moving into ever more sensitive environments – whether in deep waters, the Arctic or the Amazon and Congo basins — and these bring greater technological, political and social risks.

Second, oil and gas exploration involves an increasingly complex chain of contractors and subcontractors – failure to manage these adequately increases the industry’s vulnerability to catastrophic accidents.

“The Deepwater Horizon oil spill in the Gulf of Mexico apparently involved failures throughout the contracting chain and shows that the risks of a devastating accident are not limited to developing nations with weak governance,” says co-author Dr Emma Wilson of IIED. “With 70% or more of oil and gas exploration activities contracted out, more effective management of these chains of contractors will be critical to ensuring good environmental and social performance.”

The report identifies three broad sets of factors that hamper effective chain-wide performance:

• Lack of a sense of shared responsibility throughout the contracting chain and across stakeholder groups
• Inadequate implementation of systems and procedures to enforce standards and incentivise good performance
• Cultural and contextual challenges in widely differing regions of the world

Wilson and co-author Judy Kuszewski (independent) say these challenges can be overcome with action in seven areas, such as ensuring investment in the capacity of local contractors to meet environmental and social standards; including in contracts more robust incentives for responsible practice; and improving accountability, monitoring and oversight.

“The responsibility for the social and environmental performance of the industry lies not only with large international corporations and their contractors,” says Kuszewski. “Governments also have a responsibility to deliver good levels of development and investment in communities, to uphold human rights, and determine acceptable environmental performance.”

“Civil society has an important role to play in providing independent oversight,” adds Kuszewski. "It is our hope that this report can help catalyse further research and collaboration across these diverse players to improve outcomes in the future.”

This report was co-funded by the Swedish International Development Agency (SIDA), the UK Department for International Development (DFID) and the Norwegian Agency for Development Co-operation (NORAD).-