Stakeholder Relations and "Fracking"

Status Quo

Experts have known for years that oil and natural gas deposits existed in deep shale formations but, until fairly recently, the vast quantities of natural gas and oil in these formations were not thought to be economically recoverable. Today, through the use ofhydraulic fracturing, a.k.a. fracking, combined with sophisticated horizontal drilling, extraordinary amounts of deep shale natural gas and oil are being safely produced, especially in the Western hemisphere – U.S.A., Canada and Latin America.

Hydraulic fracturing has been used by the oil and gas industry since the 1940s and has become a key element of natural gas development worldwide. In fact, regardless of whether they are vertical or horizontal wells, this process is used in nearly all natural gas and oil wells drilled in the world today. Properly conducted modern hydraulic fracturing is a safe, sophisticated, highly engineered and controlled procedure.

In the UK, however, the general consensus seems to be that shale gas will not be a ‘game changer’ as it is in the US. There is, for example, less land available to drill on and landowners do not own the rights to hydrocarbons exploitation beneath their land.

However, in June 2013, Centrica acquired a 25% stake in Cuadrilla’s exploration license in Lancashire and the UK Government, following a report of the British Geological Survey, published the raised estimates of the shale gas resources in Northern England. Given its novelty with respect to the onshore exploration and exploitation, the UK Government has been and is still holding consultations on tax incentives for shale gas exploration and has announced subsequent community financial benefits.

Given the latest developments in the British Government’s energy strategy with respect to shale gas, when referring to “onshore chemicals pumping”, at a high pressure, whilst aiming to get the rock formations to “open” and release the gas, it’s not surprising that the hydraulic fracturing activities are causing so much public disturbance, unrest and outright riots.

It would be difficult to imagine, in the United Kingdom of today, a process which could cause so much public concern as “fracking”. For the industry as whole, for those operators aiming to exploit the shale gas resources, the social engagement component battle has been lost before it had begun. Whether this is just the first battle of a longer war, it remains to be seen and decided on at a later date by the parties and drivers involved in this lengthy, controversial, inaccurate and passion fuelled battle:

• Oil operators
• UK Government
• Local communities
• Local, national and social media outlets
• Third-party influences (personal, political and group agendas)
• Energy resources availability and cost-efficiency
• Economic viability of the proven resources
• Environmental and geological data

In a report issued by Watson Helby, it has been argued that “the energy firms see public relations in terms of the share price, not in the wider context of ensuring that the society gives them a license to operate”. The wider oil & gas industry is primarily driven by scientists – geologists, engineers, drillers and experts in their own right who are very comfortable with analysing and reporting on fixed assets. There are stand-alone departments in almost every major oil & gas operator across the world, departments simply entitled – with a slight variation – “Asset Management”. But their reputation, the way they interact with the local communities, the way they process the social information, report and act on it, are not tangible; they are “intangible”. Unsurprisingly, there are no departments called “Intangible Assets”.

Anthony Hilton, London’s Evening Standard commentator, highlighted that the oil & gas operators have an inclination to argue their scientific standpoint to justify what they do or either hope to do, failing to understand that the emotional hostility cannot be normally counteracted by such an approach.

Local environmental impacts, as produced by hydraulic fracturing activities, can give rise to issues related to the public’s acceptance thereof. With respect to a genuine stakeholder engagement, a reactive and delayed approach does not serve the oil industry - on the contrary. On one side, emotional comments are made by individuals with little or no accurate information but, on the other side, a very small group of drilling contractors are following unsafe practices, fracking too high and too close to aquifers and not lining their wells well enough.

What the oil industry should strive to ensure is a continuous education process and support of the local communities with regard to their acceptance and/or understanding of the terminology used, the processes entailed by the fracturing activities and the potential impact any of the stages could have upon their livelihood.

Contrary to a conventional well, which is cased to specifically prevent the drilling and operational fluids to interact with the strata and possibly contaminate the aquifer, in hydraulic fracturing the fluid under pressure is pushed outside the cased well into the adjacent strata and, revealing the real problem of hydraulic fracturing – the potential interaction of the fracturing fluid - which is a mixture of water and various chemicals, including acids - with the adjacent aquifer.

Industry experts who wished to maintain their anonymity for the purposes of this article, have stated that the “specific tools we have at this very moment to model the flow of gas and liquid in the strata are not very precise and the water contamination can and did occur. There is no effort to model the aquifer itself … displaced gas can also enter the aquifer, like it is the case in several US sites. The problem is that if this happens near urban agglomerations - or isolated farms – this may cause big problems”.

If the last statement above is to be summarized, it could be easily inferred that the unbiased technical answer to the question of whether hydraulic fracturing is dangerous for the public at large or not is it depends.

Based on the international studies that have been recently performed, a genuine institutional change may take a generation or more. Using network sociotechnical methods, changes in culture and climate can be instituted more quickly with all stakeholders being aware and actively involved. Realistically, no suggestion to change the oil and gas industry’s approach to local communities’ engagement will happen overnight. Empirical and anecdotal evidence show that such changes require years of effort and, generally, a restructure of the current corporate procedures, IMS and BMS.

Alternatively, the companies in the oil and gas sector most definitely have a commitment to:

• Continually inform the local communities
• Improve the way their communication is delivered to communities,
• Listen to, understand and address the communities’ concerns;
• Ensure the enhancement of the social, economic and environmental situations in the regions where they run projects.

Every operation taking place in the oil and gas industry nowadays has a recording of every action taken every 10 seconds. Relevant documentaries can be made from the data gathered, thus securing a visual and accurate representation of what is happening during the fracturing process and, simultaneously, based on the information gathered during the normal operating conditions, one can carry out logging operations every year to show variations in subsurface conditions.

Unable to present current accurate reports due to the scarcity of data available in the UK with respect to hydraulic fracturing, a report recently issued by the US Department of Energy acknowledges that most experts believe that there is relatively little risk associated with the fracturing process, in terms of its serving as a pathway for the contamination of underground sources of drinking water.  Of a greater concern, as mentioned in the same report, is the possibility for the well construction failures to allow the contamination of drinking water aquifers.

The oil and gas industry should be willing to take into account the voices and opinions that exist in society and find a way to incorporate them into responsible/sustainable development. Resources extraction/exploitation all over the world imply that the oil and gas industry is under increased scrutiny whether it be deep-water, oil sands, Alaska’s North Slope or Niger Delta.

As the fairly recent social movements (less than 2 years ago) in the UK have clearly indicated, the social “approval” trumps the regulatory one – as such, the technical experts may need to get much more involved in the facilitation of technical solutions. Perhaps the time has come for the industry (and governments) to begin addressing the co-creative consultation process as a way to get public support and to mine the innovation potential that lies hidden in a concerned public.

Media’s input could be a way into mining the knowledge that exists. The industry saying: "we've been using this technology for years" is probably not going to come across as being progressive, collaborative or solution oriented. If people are concerned about groundwater quality, they need to be reassured, explained, listened to and involved.The line of thought whereby "if only we could educate them, then it will all be ok" is unlikely to survive in a real world scenario.

Stakeholder Influence

Influence is directly proportional to importance. In low-power distance cultures – as largely encountered across the developed nations, UK in particular – the influence of the social component is dramatic to any Government or public projects. The oil and gas exploration and production projects are no different but the UK population was never prepared or properly informed about the hydraulic fracturing environmental and health impacts.

A fact well known, the UKCS (UK Continental Shelf) has been active for decades and the North and Irish Seas have been booming with new developments, adding upon the already existing infrastructure. That, albeit happening in the UK’s territorial waters, is largely accepted by the masses because it is strongly regulated, because the offshore industry has been active since mid-70’s and because it is not directly impacting the livelihoods of the UK’s population, i.e. “it is not happening in my back garden”.

Those skilled in the art of stakeholder engagement, mass communication and strategic public relations are familiar with the paramount importance of an effective communication and with the role it plays in ensuring strong relationships. More often than not, the general communication process undertaken by the operators is either totally outsourced to PR agencies or dealt with in-house. But, whatever makes sense for one, may not make sense for another. If cyanide is a regular substance used in a production process and an industry expert considers it harmless due to the knowledge on the topic he/she possesses, we cannot say the same about a typical member of the general public.

Therefore, the responsibility of communicating effectively and efficiently about the concept of hydraulic fracturing and its multitude of threats lies totally with the operators. Good communication is not just about sharing information – listening and making sure that feedback is paid due service are, too.

Many lessons have been learned from Cuadrilla’s failure to properly engage the local communities in England – a focus on the key delivery improvement targets and the initiatives required to drive information is required now:

• developing an understanding of those requirements of the local community,
• planning the specific activities to develop them and
• identifying the key individuals who are the communities’ spokespersons are key.

In an age where the information stream travels faster than before, very few hot news can be contained. And something that was started in a small village in England suddenly became viral, eliciting the attention of the entire world. This is the time where the people’s influence takes over the corporate strategies being,at the same point in time, a very crude wake-up call for those operators in high risk industries – it is all about how one engages with its group of stakeholders, primarily the local communities. And, as it could be seen from the past events, the engagement strategy employed was not the right one.

Regulation

The ultimate goal of any regulatory agency should be that of fostering a sense of community amongst the stakeholders. Implicitly, that has always been the goal of regulation, legislation and regulators. Law and regulation define common morals in an ethical code. The goal of law is not to create outlaws but to indicate to all what is considered appropriate and inappropriate behavior.

The regulating agencies (Government) have the authority to show publically any event that violates best practice on a drilling and well completion operation including cementing (well integrity), fracturing, completion (well control) and production (fluid disposal) that occurs on a well.

However, without removing the oil industry operators’ obligations, it should be emphasized that it is the government entities’ responsibility to ensure that the companies involved in hydraulic fracturing comply with the established regulations and environmental measures. Unfortunately, this process is not always as straightforward as it should be, many times appearing to be a “political game” or an issue between public relation, country progress and environmental care.

In the United Kingdom, when an operator wishes to drill an exploration well, their first step is to negotiate access with landowners for the drilling pad area and the surface under which any drilling extends. Permission must also be obtained from the Coal Authority if the well encroaches on coal seams. Then, the operator needs to seek planning permission from the Minerals Planning Authority (MPA) (In Scotland, the local planning authority). Then, the operator must obtain the appropriate environmental authorization / permit from the Environment Agency (EA) in England, Natural Resources Wales (NRW) or from the Scottish Environment Protection Agency (SEPA) in Scotland, who are also statutory consultees to the MPA or Scottish planning system.

During a Westminster Hall debate on the UK Government’s response to the DECC Committee’s 2011 report on shale gas, the overall consensus was that the Committee, which was broadly supportive of the industry, had taken a balanced and cautious approach.

In 2012 Autumn Statement, the Chancellor set out the overall Government policy and stated that the main goal of this policy was that “to ensure that we make the best use of lower-cost gas power, including new sources of gas under the land”. However, while the intended purpose of future legislation was set out, with respect to the short, medium and long term benefits of shale gas exploration, the tax levies haven’t been passed into law ye.

The Government’s “Gas Generation Strategy” noted that the shale gas production might commence in the second part of this decade and that the production was likely to grow more slowly than in the US. There were two main commitments laid down by UK Government’s Strategy:

1. A new DECC Office for Unconventional Gas and Oil with the mandate to:

• To join up responsibilities across Government,
• To ensure a simplified and streamlined regulatory process and
• To engage with the communities.

1. A ‘fair tax regime’ for future shale gas production

In June 2013, the Energy Minister Michael Fallon mentioned that the Government would soon be consulting on community benefits “through grants or expenditure or, better still, through discounts on their bills, which could be significant”.

Details of the financial package proposed by the UK operators were announced on the 27th of June 2013, a couple of its provisions being:

• Engaging with communities early (prior to any application for planning permission)
• Providing community benefits in areas where shale is commercially extracted, such benefits including:
• £100,000 for those communities situated near each exploratory (hydraulically flacked) well
• 1% of revenues from every production

Recommendations

An environmental risk assessment should be mandatory for all shale gas operations, involving the participation of local communities at the earliest possible opportunity, and such assessment should address the risks across the entire lifecycle of shale gas extraction.

Steps to enhance the existing frameworks for consultation and consenting to shale gas extraction activities should include a comprehensive high-level assessment of environmental risks, including:

• Risks to human health
• Covering the full cycle of the proposed operations,
• Well abandonment, and to consult with the relevant stakeholders, including the local communities, as early as practicable in the development of their proposals

To minimize the risk of well construction failures, it would be recommendable for the UK operators and regulators to adopt the best practices in well construction techniques, including the most up-to-date techniques for:

• The casing and cementing of wells and
• Testing the integrity of cementing jobs. 

Scientific reports that have been elaborated on the hydraulic fracturing topic in the U.S., recommend the use of micro-seismic surveys to determine the extent of hydraulic fracture growth.  Although few individuals who have studied the issue believe that fractures will extend far enough to cause contamination of drinking water aquifers, many companies are already taking steps to monitor the extent of hydraulic fracture growth.

It would be highly advisable for the regulators to require disclosure of the chemicals used in fracturing water, allowing for the protection of the identity of chemicals that qualify as actual trade secrets. Alternatively, and in order to provide the local communities with a better understanding regarding the exact substances and materials used in hydraulic fracturing, there should be rules requiring operators to supply Material Safety Data Sheets for the substances used in fracking. 

Additional field studies should be performed with a view to examine the possibility of methane leakage from shale gas wells to water reservoirs and a requirement for background testing of water wells prior to drilling of gas wells in an area should be adopted. 

The elimination of diesel as an additive to hydraulic fracturing fluid should be analyzed. The U.S. EPA is moving to regulate (though not to prohibit) the use of diesel in hydraulic fracturing. 

The development of "green" drilling and fracturing fluids should also be taken into consideration.  Some companies already have introduced "green" fracking additives that are drawn from substances that qualify as food additives.

In order to promote an improved air quality, it is recommended that companies and regulators implement efforts to reduce emissions of methane during the drilling of wells and during the subsequent production, the post‑production treatment and during the transport of natural gas. 

So far, water related issues have received the most attention from regulators across the world, primarily because the changes to it can be easily and timely noticed by the local communities, thus raising the threat to the human and animal health. However, notwithstanding the above, adequate regulations to reduce air emissions should be implemented.

Since onshore hydraulic fracturing is addressing the UK’s land shale gas reserves, perhaps reducing the use of diesel engines to power pumps and other equipment at drilling sites could be analyzed and natural gas engines or electric motors could be used

Maybe the most important recommendation for the purpose of this article would be the one related to the sharing of technology by regulators and industry through the use of technology peer reviews and the creation of a shale gas industry group to develop best practices and standards. Hydraulic fracturing, whilst arguably better regulated by the UK Government, could improve its “best practices” by using a genuine knowledge-transfer and data sharing, to such an extent that it would provide the general public the comfort that any solution that might be proposed by one operator or another is highly analyzed, peer-reviewed and assessed in terms of all potential risks.