CHAPTER 14 WHERE "SHALE" WE GO FROM HERE: OPPORTUNITIES AND CHALLENGES IN SHALE PLAYS LOCATED OUTSIDE THE UNITED STATES
| Jurisdiction | Derecho Internacional |
WHERE "SHALE" WE GO FROM HERE: OPPORTUNITIES AND CHALLENGES IN SHALE PLAYS LOCATED OUTSIDE THE UNITED STATES
[Page 14-1]
DON C. SMITH, Professor, University of Denver Sturm College of Law, Denver, CO
JESSICA RICHARDS is a Lecturer in Energy Management at Western State Colorado University in Gunnison, Colorado. Prior to her role at Western, she spent 10 years working in various land positions for oil and gas exploration and production companies in Denver, Colorado. Jessica's course load includes a wide array of subjects with a focus on oil and gas land management, such as strategic negotiations, oil and gas law, property and contracts, federal land management, energy regulation and policy, oil and gas agreements, title, and business law. She is also an adjunct faculty member at the University of Denver Sturm College of Law where she developed and taught Oil & Gas Agreements and Contemporary Issues in Oil & Gas. Jessica co-authored "Social License to Operate: Hydraulic Fracturing Related Challenges Facing the Oil & Gas Industry" presented at the RMMLF Institute in Cartagena, Colombia, in April 2015 and published in the University of Oklahoma Oil & Gas, Natural Resources, and Energy Journal. She earned her J.D. from the University of Denver and is a native of Homer Glen, Illinois.
I. Introduction
Within the past decade, two key technologies have dramatically changed the landscape of oil and gas development, in turn drawing a great deal of attention to the "Shale Revolution": horizontal drilling and hydraulic fracturing.2 While shale reserves are located throughout much of the world, thus far widespread shale development has been largely limited to the United States and Canada.
Figure 1. Map of basins with assessed shale oil and shale gas formations, as of May 2013
[Page 14-2]
In order to operate successfully, companies must acquire legal licenses to operate from the government and social licenses to operate from communities. However, the current statutory and regulatory frameworks in place outside the United States - in fact, even outside the U.S. state of Colorado - are focused on conventional oil and gas development and thus do not effectively address the unique social and environmental impacts of shale development. As a result, the legal licenses currently available from governments around the world may not provide the sort of legitimacy that must exist for the social license to operate concept to take root. In other words, unless countries adopt an effective regulatory framework based on that employed by the state of Colorado, communities will not grant a social license to operate and the tremendous shale resources around the world will continue to go undeveloped.
Governments outside the United States, arguably outside even of Colorado, have not developed and implemented a comprehensive regulatory framework that effectively manages the unique environmental and social impacts associated with shale development. As a result, countries with tremendous shale resources are by and large not positioned to grant a legal license to operate that local communities are willing to recognize as legitimately addressing their concerns. Without a legitimate legal license to operate, companies will not be able to obtain the elusive social license to operate recognized by industry and academics alike as essential to the development of shale resources.
Governments must revise the "legal license to operate" they grant through their laws and regulations to effectively address the unique environmental impacts associated with shale development. Industry must address community issues, earning trust and therefore a "social license to operate." All stakeholders must recognize these licenses - legal and social - are not distinct, but rather must necessarily complement and reinforce one another to effectively and responsibly jumpstart large-scale development of shale resources scattered around the world.
This report discusses the social license to operate in the global oil and gas industry, advocates for the adoption of Colorado's regulatory framework as a means of ensuring an effective and legitimate legal license to operate that augments and reinforces the social license to operate, and provides fundamental knowledge regarding the above- and below-ground factors in countries with significant shale resources that can either influence or inhibit the obtainment of both of these licenses as a means to stimulate increased development of these unconventional resources worldwide.
[Page 14-3]
II. Securing a License to Operate
Clearly, companies lacking a legal license to operate will be prevented from exploring for and developing shale resources. Simply stated, a legal license to operate in the oil and gas context necessarily includes the initial permission to explore for and develop shale resources, usually vis-à-vis a concession or permit, as well as ongoing compliance with laws and regulations governing the exploration and development of oil and gas resources. A legal license to operate is granted by the government - usually at the national level outside the United States - to individual companies.
Additionally, it has become clear that companies possessing a legal license to operate must still obtain a social license to operate. In an effort to address the impacts of shale development on local communities, several energy development scholars recommend that operators obtain a "social license to operate" in communities near extractive industry projects. Iain Donald adroitly summarized this reality in 2013, noting
The oil and gas industry faces growing opposition to unconventional [development] from increasingly well-organized and funded opposition groups in the "developed world," as well as grassroots community groups lobbying on land rights, free prior and informed consent with stakeholders in the "developing world." As a result, from Canada to Cameroon, companies will increasingly see their fortunes (as measured by business disruption and reputational damage) tied to thorough, transparent, and effective engagement with the communities within which they operate, as well as through assessment of each project's social impact. This is especially crucial as opposition groups in one area are increasingly well-networked with disparate groups in others, sharing effective tactics and techniques. 3
Energy scholars and industry leaders recognize that "having a [social license to operate] is as important as a valid mineral concession and being legally compliant with regulators (and in many circumstances may well be more significant than the latter)."4
Social license to operate has been broadly defined as
The demands on and expectations for a business enterprise that emerge from neighborhoods, environmental groups, community members, and other elements of the surrounding civil society. In some instance the conditions demanded by the 'social licensors' may be tougher than those imposed by regulation, resulting in
[Page 14-4]
'beyond compliance' corporate environmental measures even in circumstances where these are unlikely to be profitable. 5
Other scholars have emphasized that the social license to operate "is a metaphorical term used to conceptualize the notion that, alongside legal permits and licenses, there is the often less tangible 'social acceptance' without which a company may face 'non-technical' risks such as community conflict and workforce protests."6 While governments can issue a legal license to operate relatively quickly, and generally provide a defined process through which the legal license can be revoked, "a social license to operate, much like a reputation, is first and foremost built on trust, which takes years to build, but can be lost in seconds."7
The process of obtaining a social license to operate includes, among other things, early as well as ongoing communication with communities, transparency and engagement in decision-making, and the establishment of effective conflict resolution mechanisms.8 While the concept of social license to operate emerged from and evolved to become a standard business practice in the mining industry over the past nearly two decades, the concept of social license to operate is in its infancy in the oil and gas industry.
Despite the recognition paid to the importance of the legal and social licenses to operate, not much attention has been paid to the complementary role each of these licenses plays for the other. The legal and social licenses to operate have been discussed in either isolation from one another, or the social license to operate has been discussed merely as an extension of the legal license to operate. In fact, some scholars have gone so far as to argue that "in practice the two licenses are distinct" and that "regulatory approval does not necessarily equate to social approval of that activity."9
While these licenses may issue from different sources, these licenses are in fact neither distinct nor mutually exclusive from one another. In reality, neither the social nor the legal license to operate is individually sufficient to stimulate increased development of global shale reserves. Rather, these licenses augment one another; just as the social license to operate is a requisite extension of the legal license to operate, a robust legal licensing framework must exist before a social license can even be contemplated, let alone obtained. As Neil Gunningham has noted
The regulatory license often extends the reach and impact of the social license, either by directly empowering social licensors, or by giving them access to information, which they can then use to pressure target enterprises. Conversely, the scope of the legal license can also be expanded as a result of its interaction with the social license - for...
To continue reading
Request your trial