Social risk is becoming as important a factor in project delays as technical risk. Being technical people, we are used to managing technical risk and have the processes and systems in place to do so. However, we have yet to develop effective processes to manage social risk. Historically the industry has largely managed to escape the impact of social risk as our projects have been offshore and out of sight, but it is becoming more evident that our interaction with the local population as well as at government, national, and international levels creates significant risk to the project and to the company.

Social risk

The shale gas debate has brought oil and gas into the center of the public eye when it comes to addressing our energy needs.

Disenfranchised populations living around a project routinely delay and damage project progress. The need to win the hearts and minds of people living near production facilities is just as important in the international domain.

But perhaps more complex in international operations is the industry's interface with national governments. An important cause for disenfranchised people is the effect of hydrocarbon wealth on a corrupt government. Key questions for us to address are the roles an oil company has toward national governments and whether we can choose to ignore the human rights/social justice records of the host governments in countries in which we operate. Most companies would agree that the answer to the second question is probably "no," but to the first, the honest answer is "we don't know."

In a number of developing countries, particularly in Africa and the former Soviet Union states, our industry has a dominant impact on the national economy and in some cases enables corrupt governments to stay in power to the detriment of their subjects. World Bank data from 1970 to 2001 shows that on average, countries in Africa and the Middle East are worse off now than before hydrocarbon development.

The industry has the chance to improve social wellbeing in emerging hydrocarbon economies such as Ghana, Uganda, and Mozambique. In Ghana the signs are very encouraging, but sadly less so for Uganda and Mozambique.

Taking a holistic view

Many of the issues discussed here are caused by poor-quality governance. However, I believe the solution starts at the local and project level. The implicit contract that a company has is that a project will damage the local neighborhood but that local people will be better off. The industry has manifestly broken this contract in that the populace is patently worse off.

Achieving a winning outcome to this contract requires managing the interplay of three risk domains: environmental, societal, and technical. The value of the environment must be determined in social terms (and not a purist "preservation" measure set in Western ivory towers). We can manage our environmental impact at the project design phase through engagement with the local people. We can also manage the benefits to society with local procurement and wealth creation (i.e., not just building schools and hospitals to salve our conscience).

The way forward

We should take the same approach to winning social acceptance for a shale gas development in the UK as for building an LNG plant in Mozambique by engaging with people early, listening to them, and having a material value proposition for them.

Achieving such an outcome requires integrating early social engagement and HSE functions into the project stage processes to address local concerns alongside achieving regulatory compliance. This will be a challenge for many companies that have only just managed to get geologists to talk to engineers. Social scientists may appear a step too far but are absolutely essential.

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