The Importance of Public Image to the Petroleum Industry

Public attention to the petroleum industry may never have been higher and more critical than it is today.

Peter Smith, an associate of Warren Business Consulting, observes that the intrusiveness of operations in unconventional plays, the climate change debate, deepwater operational risk, growing interest in Arctic deposits and the search for renewables are all hot topics in the news and sources of broad concern to the general public. In turn this puts pressure on governments and institutions to be more active than ever in regulating and “managing” the industry.

 

So what’s driving public opinion?

Ordinary citizens may have valid concerns. These include community disruption due to intense operations near populated areas, fears that proprietary chemicals, of undisclosed composition may contaminate the water table, unmetered emissions from producing infrastructure may aggravate climate change and a general feeling that industry does not sincerely address these concerns or take appropriate actions. Some say that public concerns are simply dismissed by the industry as being unfounded. Often because the technology and science is difficult to explain to the layman, industry managers may justifiably wish to avoid getting into the complexities of geomechanics, inorganic chemistry, geology and completion engineering with those who probably don’t want to know anyway.

There is also a diverse coalition of ideological and vested interests unlikely to be swayed by industry-funded studies or glossy PR campaigns, that drives the debate and this can further impact government policy and public opinion relating to regulations and permits. This coalition also has a well-organized system to directly impact government decisions and apply legal challenges.

What should be done, if anything?

One of the advantages of a favorable Industry Public Image would be to defuse any suspicions held by the general public regarding the ethics and competence with which these complex activities are being conducted by a seemingly opaque industry. Other advantages include reducing the regulatory burden trend, increasing the number of institutions willing to invest in petroleum, thus reducing the cost of capital, reducing the risk of moratoria on fracing & deepwater drilling, and softening resistance to new pipelines.

Should individual companies have their own Corporate Social Responsibility plans to show real change and concern? Some argue that increased expenditure on PubIic Image without a direct link to additional revenue is unfair to the shareholders and that management would be shirking its fiduciary responsibility. Others argue that for capitalism to function well in our society managers have to recognize the company’s responsibility to all stakeholders:

If the executives and directors of a firm believe that creating shareholder value is the only legitimate objective for business, they must concentrate on stakeholder relationships to accomplish the creation of shareholder value. The logic is simple. The business world today is very complex and there is a great deal of uncertainty. It consists of interconnected networks of customers, suppliers, communities, employees, and financiers that are vital to the achievement of business success. The company that manages for shareholders at the expense of other stakeholders cannot sustain its performance. A system of economic activity based on such exclusive attention to shareholders is rife for social activism and regulation in a free society on behalf of the other stakeholders. [Chicago-Kent Law review]

In fact The Economist states that there are often examples of win-win investments that can be made which improve the public image and display sound Corporate Social Responsibility. An example of such a win-win investment is given by an ICF International study to reduce 19 methane emission sources in the USA resulting in an estimated $104 Million annual industry savings. To be sure, there are some caveats to the study but it is very thorough and analytical and could make interesting reading for those involved in HSE and production operations.

Or should there be some kind of industry wide self-regulation as demonstrated by the Chemical Manufacturing Association which enabled that industry to have a bigger say in the design and implementation of the regulatory regime? A move in this direction appears to have occurred recently in Colorado where some major producers collaborated with state authorities and the Environmental Defense Fund to develop regulations to reduce air pollution by eliminating gas leaks. These regulations would apply not only to themselves but to the industry as a whole in Colorado.

This might be an interesting bellwether for other areas of the industry because alignment of all operators towards a common concept of the importance of Public Image is likely to be difficult to achieve and the lead may need to be taken by some farsighted, key players to wisely reduce the risk of ill-conceived regulation and over-zealous activism while improving their own long term valuations.

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