Last week Premier Oil of the UK held a seminar outside Rangoon for Burmese security and legal officials on, of all things, human rights.
This was Premier’s riposte to critics, ranging from the UK government to human rights groups, which have urged it to abandon its gas drilling project in Burma because of political repression in that country.
Broadly similar arguments are being made to BP, under pressure to divest its stake in Petrochina due to the latter’s activities in Chinese-occupied Tibet.
On the other side of the world, BP and other companies active in Alaska may soon face opposition from indigenous peoples if the new Bush administration succeeds in opening up part of the Alaskan National Wildlife Refuge to drilling.
These are just some examples of the growing dilemmas oil companies are facing – and compromises they are making – as they take their quest for oil to the ends of the earth. The forces driving the quest are obvious.
Global consumption of oil, still the world’s dominant fuel, is expected to rise from 77m barrels a day to 115m b/d by 2020. Industrialised countries want to avoid further reliance on the Middle East members of Opec, source of 66 per cent of known global oil reserves. Discoveries such as the North Sea and Alaska are now levelling or tailing off. So the hunt is on for new sources, especially in central Asia, West Africa and Latin America. Worldwide annual spending on exploration and production is predicted by Schroder Salomon Smith Barney to rise 20 per cent this year to $113bn.
Geology dictates that the oil industry cannot easily pick and choose where it operates. While many countries had human rights long before they knew they had oil, there is also ample evidence that oil can fuel corruption, foment political instability, and introduce a damaging boom-and-bust cycle.
Increasingly, oil companies are being called upon to help mitigate some of these ills.
Moreover, public expectations of oil companies have also changed.
In the 1970s, when companies such as ITT were accused of toppling governments in Latin America, “the worry was of multinationals getting too involved in government. Now people say they should get more involved”, notes Robin Aram, a Shell vice-president.
In 1976 his company produced its first set of business principles, telling its subsidiaries to stay out of politics. Now it tells them they have “the right to make known their views on matters affecting their local community”.
But the revolution in general expectations of the oil industry still leaves individual companies uncertain as to where and how to operate.
“We look for clear guidance from the international community, but we rarely get it,” says Mr Aram. United Nations sanctions on Iraq have the merit of clarity. But the US forbids investment in Iran; European governments permit it. The US disapproves of investment in Sudan, European governments condone it. Nor do international NGOs agree. Some want BP out of China, others don’t.
Arvind Ganesan, oil industry expert with the New York-based Human Rights Watch (HRW), says he thinks only Burma and Turkmenistan deserve ostracism for their repressive and corrupt regimes.
In this confused situation, the big oil groups’ attitudes tend to reflect experience and nationality. In recent years, Shell found itself pilloried over Nigerian army brutality in protecting its facilities, while BP had to face the controversy over the way para-military thugs were used to defend its Colombian operations.
But despite its base in the US, home to many human rights groups, Exxon-Mobil, the largest oil company, has consistently refused to join Shell and BP in signing up to any broad principles of political or social responsibility. Unlike Premier Oil, TotalFinaElf, the French oil group, has not faced any pressure from its home government to pull out of Burma. A senior executive, however, admits Total has “become more strict” in ensuring no forced labour is used in its operations there.
One area of natural paranoia for oil companies is risks to their employees and installations in conflict zones. In the past, they have not really cared how security was provided; now they have to.
After discussions with Amnesty and HRW in 1996-7, Shell took over recruitment and training of the Nigerian police on its payroll, and changed their rules of engagement. Shell joined Chevron, Texaco and BP in signing up last December to a set of “security and human rights” guidelines for oil and mining companies, drawn up by the US and UK governments.
Premier says it would have signed up too, had not Washington expressed a “level of discomfort” at having such a controversial investor on the list of signatories. Premier is meanwhile spending $700,000 a year in Burma on social projects. This is intelligent self-interest in two ways, suggests Charles Jamieson, Premier’s chief executive. First, it helps win contracts. “Unless companies actively articulate programmes, they will not be as successful in getting [oil] concessions.” Second, “having the local community on your side makes it easier to do business”.
Shell is doing the same in Nigeria, on the bigger scale of $50m a year, as befits a company that makes over $500,000 a day profit on the 800,000 b/d it pumps out of Nigeria.
“The formal licence to operate comes from the government, but the informal licence to operate comes from the local community and NGOs – and you have to balance the two,” according to Titus Moser, Shell’s resident anthropologist.
“We’re in the business of pragmatic trade-offs”, says Sir John Browne, BP’s chief executive. He acknowledges that over opening Alaska’s ANWR to drilling, “we will be in conflict with certain non-governmental organisations. . . but that is their role”.
“If I had to choose between being in a place where no one disagreed with us or couldn’t say so, and the situation today”, the BP chief claims, “I’d choose today’s situation like a shot.”
