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It seems that every couple of months, we run into yet another entity that believes it sits on unassailable, moral high ground, and thus uses that perceived status as an excuse to harass and/or extort the global upstream industry. Just three months ago, we brought you news of the group that has appointed itself the status of “environmentally certifying” oil and gas companies for responsible production, whether they want it or not.
The art of FPIC. Now comes yet another group, which has decided that the “indigenous peoples” (I.P.) of the world are not having their native rights respected by operators. Therefore, this organization, First Peoples Worldwide (FPW), is now going around, teaching I.P. the art of “corporate engagement.” This tactic includes the insistence that oil and gas companies must consult local I.P. tribes/groups and reach an “understanding” (better known as “Free, Prior and Informed Consent,” or FPIC) with those people before any work is done on I.P. land, even if these firms already hold valid, legal permits for seismic work or drilling from the appropriate national or state/provincial government.
I asked Nick Pelosi, FPW’s corporate engagement associate, to explain the latter point. “Being antagonistic has not been our purpose,” said Mr. Pelosi. “We are trying to promote the business case that it is more productive to be respectful to I.P. Legal protections (provided by governments) are not always adequate to ensure that I.P.’s way-of-life and lands are respected.” Wouldn’t it make more sense, I proposed, for the I.P. to go after the governments and effect changes there, rather than attack the producers, who are merely acting on permits and contracts reached with officials? Mr. Pelosi replied that in theory, the governments need to be held accountable, but he also admitted that for some indigenous groups, the companies are easier targets.
Speaking of targets, FPW recently released its first-ever Indigenous Rights Risk Report, which analyzed 52 U.S.-based extractive companies, and assessed 70 oil, gas and mining sites located on, or near, I.P. lands. Not surprisingly, FPW found that 92% of the sites pose a medium-to-high risk for these firms’ shareholders. Furthermore, laments FPW, only five of the 52 firms have an I.P. policy in effect for engaging those communities.
FPW used Southwestern Energy’s Canadian subsidiary as an example of a firm that didn’t practice sufficient FPIC before embarking on a seismic exploration program on Elsipogtog First Nation land in New Brunswick. On Oct. 1, the Elsipogtog tribe’s chief delivered an “eviction notice” to SWN Resources Canada, as dozens of protestors blocked the firm from moving seismic trucks down Route 134. The situation escalated, with daily blockades, and SWN requested an injunction against the tribal protestors. The Canadian Royal Mounted Police (CRMP) moved in on Oct. 17 and arrested 40 people while enforcing the injunction. SWN requested a permanent injunction that was denied on Oct. 22, but continued protests resulted in a new, temporary injunction being issued on Nov. 22, which was extended by two weeks on Dec. 2.
Meanwhile, SWN said that the delays from the protests and blockades were costing it up to $60,000 per day. Furthermore, the firm sued 13 protestors on Nov. 1, saying that at that point, it already had lost $650,000, including a $380,000 drilling rig destroyed by fire, along with vandalized geophones and trucks.
“We do not encourage violence or the tactics used in New Brunswick,” said Pelosi. He then mentioned a situation in Bolivia, where FPW encouraged the local I.P. groups to work with an unnamed oil company, to reach a fair understanding. The parties did reach an agreement eventually, but predictably, it resulted in the operator shelling out a significant amount of money to provide compensation (agricultural programs and local jobs) for “impacts” that affected the I.P. lifestyle and property.
So, the net conclusion that one takes away from this discussion is that I.P. groups will, increasingly, demand consultation and compensation from producers, no matter what permits the companies already have from the governments. If the firms don’t comply, and these I.P. groups are unhappy, then they will resort to protests, blockades and whatever means are necessary to stop development. This is a form of anarchy. It also is a form of extortion. It reminds this editor of organized crime thugs putting the hit on shopkeepers in New York City or Chicago for “protection money,” just so they can continue to operate without being harassed.
On its website, FPW says, “Everything we do is geared toward helping our communities achieve control over their own assets, including land, cultural rights and intellectual property.” This situation bears watching worldwide, especially in places with high I.P. populations, like Canada, Australia, South America, and portions of Africa.
Another tax war. Predictably, the Obama administration, through its congressional surrogates, is mounting another assault on the U.S. upstream industry’s tax provisions, to drain more tax money. This time, the threat comes from lame duck Sen. Max Baucus (Dem. – Mont.), who, conveniently, is not running for re-election next year, and thus has introduced tax reform provisions that would wipe out the Intangible Drilling Costs (in the tax code since 1913) and Percentage Depletion (in the code since 1926) write-offs.
“If these ill-advised proposals become law, they will cripple our momentum toward achieving U.S. energy independence,” said Townes Pressler, chairman of the Texas Alliance of Energy Producers. “The draconian changes proposed in Sen. Baucus’ draft would drain as much as 30% to 35% of the risk capital we use to sustain the current shale energy boom,” said Mike McDonald, co-owner of Houston-based Triad Energy. This situation is fluid and won’t be resolved overnight. It could change considerably, so stay tuned to further developments. 
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