COLOMBIA – The Environmental Menace

It has been decades since most people in the petroleum industry held any beliefs that the development of the natural resources that form the core of our sector should be done in anything less than an environmentally responsible manner. Governments have taken the position that regulation is the way to ensure that minimum standards are met. Most responsible oil companies take the view of meeting or exceeding the highest of the standards set by the host nation, their home country or industry standards, often resulting in internal company standards exceeding those of the host country.

Yes the industry has been the cause of environmental damage. Human error, and mismanagement, in certain cases, has resulted in environmental issues which make world headlines. The industry tries very hard to learn for those mistakes. And thankfully, those incidents are the rare exception to the rule of an industry that does as much to self-regulate on safety and environmental issues as any industry in the world. The industry as a whole is committed to continuing to improve, as it has shown consistently over the last three decades or more.

Governments should have a role in ensuring that standards are met. Host countries have every right to implement environmental standards that they feel are an appropriate way to protect the country and balance the need for that protection with the desire for economic growth. Where things can go wrong is when the implementation or enforcement of the regulations is haphazard or mismanaged. South America has historically lagged Europe and North America in the effective implementation and enforcement of environmental regulations. That is starting to change, but worryingly, in a way which is ineffective, time consuming and that often ends up stifling investment.

Colombia is a case in point. Environmental permitting of new drilling sites used to be somewhat of a formality. Over the last fifteen years that has evolved to being a paperwork and time intensive process that appears to have somewhat randomly applied rules and most damagingly a very uncertain time line. Permits can take as little as seven months, or can be delayed for years. And we are not just talking about permitting projects in remote, sensitive areas or near national parks, this is also the case for development in mature oil areas. Oil companies are willing to comply with virtually any required process, and can live with permits taking time to process. What they cannot live with is the uncertainty of timing and an opaqueness of process. The result in Colombia, and in other markets such as Peru is that instead of advancing in parallel with preparatory work, or even allocating capital to a project, most operators sit on the sidelines, and do not invest time or money until they actually get the permit issued. Given that the current time to process many permits is 18 months or more in Colombia, and has been over 4 years in some cases in Peru, this can make the time frame assigned to explore a given oil block completely impractical. How can a government expect someone to complete a series of exploration wells on a block which they have been granted a three year exploration permit when the environmental license can take two of those years to come out ? So what ends up happening is that exceptions are made to the allotted time frames. More bureaucracy is created and oil and gas developments become an exercise in filing paperwork. Focus is taken away from the technical work that is often times very challenging, and even worse, the time frames involved often precipitate that work ends up being carried out in a hasty manner to comply with the short time left, heightening operational and environmental risk.

Recent announcements by the Peruvian government, and more recently by President Santos of Colombia that environmental permitted processes are to be sped up have been taken as a moderately positive sign by the industry. Everyone wants the timing to come down. Perhaps even more importantly, the fact that the President has made this a personal issue is even more important. No one disputes that changes are required. The ANLA (Colombian government environmental licensing body) currently only manages to deliver 16% of permits in their own published guidelines. Hopefully direct pressure from the office of the President will start to see this improve.

Further complicating the environmental debate in Colombia is a wave of highly publicized criticisms of fraking with opposition leaders, environmental groups such as the WWF and others loudly requesting a moratorium on the practice. Some of the loudest concerns are coming from at best lightly informed sources, and fail to recognize that the Ministry of Environment (MinAmbiente) and the ANLA have been studying the process through two ministries, over more than four years. They have travelled the world, and hired the best consultants, (in the case of the ANLA perhaps the most negative consultants they could find), and they have consistently found that the practice can and should be benign to the environment. Leaving aside that it is a practice which has been going on safely for years in Colombia. What is hardest to fathom is that some of the loud complaints about the practice are coming from areas like the southern Puto Mayo region, where the reservoir types are unlikely to ever see the technique applied.

At the end of the day stake holders want to know that any economic development that takes place in their area is going to be done in a manner which is as much in harmony with the environment as possible, that violators of rules will be punished and that plans that are put in place are actually followed. Examples around the world have shown that a paperwork heavy process to get a greenlight to proceed, followed up by spotty or ineffectual enforcement is a recipe to have wonderful binders full of plans, which never get fully implemented while opening up space for potential corruption. What has been shown to work is a system where the processing of environmental (or other required) permits is well defined, handled in a time efficient, consistent manner and most importantly, that enforcement is swift, effective and with well-defined consequences that matter. The petroleum industry wants to invest, provide jobs and opportunities and they want to do so in a manner that leaves a lasting positive impact for the host countries. What they don’t want to do is have to work to comply with ill-defined processes which delay investment, make complying with other government imposed rules around the timing of that investment suspect and uncertainty in how they will be treated as time goes forward. Ours is an industry that thrives at making enormous investments to develop often illusive resources far below the surface of the land. We can be an engine of economic and social development in some of the most remote areas of the world. When the rules of the game are uncertain, or the processes are convoluted, the oil and gas companies will elect to invest their money and energy in places where they are more certain to be able to see the investment go into developing oil and gas and not be held on the sidelines waiting to see if they will be permitted to work.

Warren Levy

Sep 25, 2014