Communities in oil and gas plays wrestle with the economic, social and environmental impacts of E&P operations, often for generations. Naturally, citizens have a vested interest in the sustainable development of their communities. A social license to operate (SLO) can be viewed as the ability of a company to conduct operations based on expectations by society that it will operate in a reasonable and responsible manner, according to the New Zealand Sustainable Business Council. Obtaining and maintaining an SLO is often seen as having a positive impact on an oil and gas operator’s bottom line. Consequently, operators face increasingly elevated expectations as to how they manage their drilling waste and its impacts. Consideration of SLO factors is essential when evaluating drilling waste management options.

As noted in the 2014 paper, “Oil and Gas Exploration and Production Research Brief,” by the Sustainability Accounting Standards Board (SASB), drilling waste has environmental, social and economic impacts on communities in oil and gas plays. These are directly related to the sustainability of the waste management practices employed by the operator. Citizen concerns about drilling waste directly affect an operator’s SLO. Environmental concerns frequently include protecting the quality of groundwater, surface water and air, land area consumed by drilling waste disposal, degradation of soil quality, and potential destruction of habitats, wildlife and biodiversity. In some areas seismic impacts from deep injection well disposal of drilling waste are a primary concern.

The sheer volume of drilling waste generated drives an increase in truck traffic and land consumption for management and disposal. Increased truck traffic accelerates roadway deterioration, especially for local roads not designed for the demands of oil and gas operations. Truck traffic and drilling waste disposal practices impact quality of life, generating noise and impacting air quality. The environmental and social impacts of drilling waste can affect community health and health services, as noted in the 2014 SASB paper.

Opposition increases costs, delays

Company-community conflict or industry-community conflict can erode or destroy an SLO. According to the 2014 Harvard Kennedy School report, “Costs of Company- Community Conflict in the Extractive Sector,” environmental issues typically ignite a company-community conflict. Waste management practices are often at the core of such conflicts. Drilling waste is no exception. The construction of drilling waste disposal facilities often precipitates conflict, as concerns over air quality, water quality and truck traffic spur opposition.

Sham recycling, which is usually a dirty disposal method under the guise of recycling, can precipitate this conflict. A proposal in Pennsylvania, for example, to use a large volume of drill cuttings as fill to extend a runway next to Pennsylvania’s Grand Canyon sparked widespread public outrage, according to a 2015 NPR Pennsylvania State Impact article. Another example of sham recycling is “road spreading,” in which drill cuttings—even oil-based cuttings— are spread on a local road and covered with rock. Landfarming, in which drilling waste is spread across land, also can provoke citizen opposition.

Community opposition can result in permitting delays, increased regulatory oversight, drilling bans, lawsuits, protests or boycotts. In 2012 the town of Erie, Colo., passed a moratorium on drilling in response to public outcry, as noted in a 2016 article in the Journal of Energy and Natural Resources Law. In May 2016 seven environmental groups filed a lawsuit against the Environmental Protection Agency (EPA) to increase regulation of oil and gas wastes, including drilling waste. A settlement agreement was finalized in a consent decree in December 2016, requiring the EPA to review and possibly revise oil and gas waste regulations. Protests caused a temporary shutdown at a drilling waste facility in Ohio in 2013, according to a 2013 Tribune Chronicle article. Pennsylvania recently revised its oil and gas waste regulations, which included a new prohibition on waste fluid pits at the drilling site. The Arkansas Department of Environmental Quality toughened regulations on landfarms in 2009 after inspecting 11 landfarms and finding them all out of compliance, as reported in a 2012 NPR Texas State Impact article. Several were shut down.

Socially conscious companies fare better

According to the 2014 Harvard Kennedy School report, losing all or part of an SLO can result in significant material costs to a company. Tighter regulations result in higher costs for conventional drilling waste management. Legal fees related to lawsuits can be substantial. A company can suffer opportunity costs and lost revenue due to the inability to pursue projects, expansions or sales.

A 2012 Credit Suisse study found that the hydrocarbon industry averaged a 1.5% negative impact on target share price related to SLO conflicts. One international oil major calculated $6 billion in costs over a two-year period due to nontechnical stakeholder risks, according to the 2014 Harvard Kennedy School report. Environmental or social concerns may result in more onerous loan conditions. One lender rejected approximately 10% of transactions on environmental or social risk grounds on the basis that companies lacking sound stakeholder relations tend to financially underperform versus peers who are more proactive. Socially conscious investors are increasingly evaluating the environmental and social performance of oil and gas companies.

SLO-related costs can be significantly reduced by employing sustainable drilling waste management practices that address stakeholders’ key concerns of protecting water resources, soil, air, habitats, wildlife and biodiversity. Reducing truck traffic, which is frequently a contentious issue, also strengthens the SLO. When stakeholders are confident their concerns will be taken seriously, they are more likely to grant an SLO. For example, in 2012 when the moratorium on drilling was passed in Erie, Colo., over concerns about environmental and health impacts, two oil and gas operators negotiated a memorandum of understanding with the town. This required the operators to employ best management practices that exceeded the required regulatory thresholds. As a result, the moratorium was lifted, as noted in the 2016 Journal of Energy and Natural Resources Law article.

Innovation can reduce friction

Social license pressures may generate opportunities to sustainably manage drilling waste by spurring innovation and evaluation of win-win options. For example, drilling waste volumes can be reduced with innovations that increase the efficiency of drilling and solids control. Drill cuttings can be sustainably recycled into engineered drilling pads, production pads or lease roads using proven repurposing technologies. Increasing the number of wells drilled from a single pad reduces the area of land disturbed, which reduces impacts to soil, water, vegetation and wildlife.

Multiple innovative, sustainable practices can be combined to achieve a significant reduction in drilling waste impact, thus directly addressing particular citizen concerns. As an example, drilling multiple wells from a single pad requires a durable pad that will withstand the loads applied to it. Constructing an engineered pad with drill cuttings provides a durable pad designed for the additional loading.

This turns a waste stream into an asset, significantly reducing environmental impacts from solid drilling waste and pad construction, reducing the area of land consumed and lessening the volume of drilling waste-related truck traffic in the community. This innovation creates a win-win scenario for the operator and the community.

Sustainable drilling waste management can benefit an operator’s bottom line by reducing the risk of incurring SLO-related costs from lawsuits, delays in operations, regulatory penalties and lost opportunities. As noted in the 2014 SASB paper, financing can be more effectively leveraged from socially conscious lenders and investors. An increasing number of oil and gas lenders and investors are evaluating environmental and social sustainability criteria as part of an operator’s core business.

By reducing environmental and social impacts of operations, an operator enhances its reputation, and, by extension, its SLO.

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