Acorn Ideas

Issue No. 29, January 2015

A Window into the Opposing View - Stakeholder Concerns about Oil and Gas in Mexico

The opening of Mexico’s oil industry to foreign capital (the “Apertura”) offers distinct opportunities for investors and the Mexican people alike. With a poverty rate of 60.8%, Mexico’s rural communities need jobs and new sources of economic growth. And as Brent crude trades at around $50/barrel, oil companies are attracted to a rare potential scenario: a North American environment in which oil can reportedly be produced below $30/barrel.

Given these conditions, the idea of opening Mexico’s oil reserves to foreign investment should be appealing to all sides. But Mexico’s people are divided in their outlook toward the benefits of foreign investment in its rich oil heritage. Many are distrustful of their government’s ability to hold foreign operators accountable for behaving responsibly and to produce the ideal “shared value” 1 between companies and their host communities.

Looking beyond the fiscal, legal/contractual and technical uncertainties involved in extracting oil and gas in Mexico, operators will find a complex sociocultural environment; one in which satisfying host communities - and addressing the “non-technical” risks (NTR) - may be their biggest challenge of all.

The world of NTR can be murky and dangerous, but it is one that companies will need to understand and manage extremely well to succeed in Mexico. And when it comes to NTR, we often learn more from listening to our opponents than to our colleagues. A one-sided documentary released by Al Jazeera on Christmas provides an important window into the fears and frustrations of some who are already opposing foreign investment in Mexico’s oil and gas industry.

Crude Harvest 2 highlights concerns of oil field communities and human rights groups in Mexico over increased corruption and social instability, based on a premise that the government will give away the resources and not police foreign oil companies. The piece points to environmental and community damages caused by Mexico’s own national oil company during its 75-year monopoly and asks: if the government lets PEMEX get away with these damages, how will it ever ensure foreign operators act responsibly? 3

Among the concerns highlighted are:

  • Potential spills and environmental damages, affecting livelihoods that depend on farmland, clean water and other natural resources
  • On-going discharges to air and water bodies, posing a risk to the health of residents and their livestock
  • Traditionally limited opportunities for local hiring and procurement, defying hopes that communities will stand to gain from exploitation of their underlying resources
  • Increased opportunities for corruption given the introduction of new players and new rules for governing public resource extraction
  • Heightened security concerns due to the perception that new entrants will need to knowingly or unknowingly work with and thus empower cartels to secure their own operations
  • Increased social instability and diminished quality of life brought on by the factors above 4

Crude Harvest highlights concerns that are certainly grounded in personal uncertainty and fear of negative impacts to communities, but that are amplified by special interest groups and by political groups that oppose the Apertura. Mexico’s campesinos stand to gain or lose significantly depending on how sustainably foreign operators manage their corporate responsibilities when conducting seismic, drilling, development and production operations in the rural on-shore and shallow offshore fields. These are people who possess the same brand of wisdom, pride of family and community, and mastery of rational, value-based decision-making that form the respected backbone of the world’s most honored cultures. The documentary discredits them by skewing and sensationalizing their concerns.

Whether the host communities ultimately support E&P operations by foreign interests or not, their fears and frustrations are real and firmly founded in decades of missed opportunities for good governance and responsible operations. Operators will find that satisfying these concerns will be among their most formidable and important challenges in ensuring the long-term success of their investments in Mexico. The key will be applying internationally-proven methods to understand and manage NTR while fully integrating local knowledge of the unique sociocultural conditions on which these risks are founded.

Twenty years ago, Amazon Crude raised similar, one-sided concerns about oil and gas activities in the rain forest, and more recently Gasland promoted opposition to shale oil production in the US. Like its predecessors, Crude Harvest is a one-sided and politically motivated piece. That said, it highlights some of the important community concerns and challenges to strategic planning for the success of long term investments in Mexico. It reminds us that listening to and carefully understanding the opposing views of our most important stakeholders is a critical, if uncomfortable, step to successful E&P operations. Nowhere will this lesson, and the NTR management solutions it requires, be more important than in the opportunities opening to the industry in Mexico.

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1 See recent commentary on shared value as a component of corporate social responsibility in the January-February issue of Harvard Business Review: “The Truth About CSR”, by Katsuri Rangan, Lisa Chase, and Sohel Karim. Available at https://hbr.org/2015/01/the-truth-about-csr

3 To the government’s credit, it has recently issued strict social impact assessment requirements for oil and gas activities, along with rigorous requirements for local content hiring and procurement and human rights reviews.

4 A December 2014 Acorn International article discusses key NTRs facing investors in the first round of Mexico’s oil and gas industry opening - the shallow water fields offshore Veracruz and Ciudad del Carmen. See http://acornintl.net/news/notes28.html

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Issue 28 -Why Non-Technical Risks Matter to the Mexican Apertura
Issue 27 -Equator Principles:Drivers of Sustainability in the Oil and Gas Industry?
Issue 26 -The Transparency Tightrope: Examining UNEP’s New Access to Information Policy
Issue 25 -July 2014: Bouston
Issue 24 - July 2014: Land Tenure and Property Rights - Where Legal Compliance May Not Be Enough
Issue 23 - May 2014: 3 Things I Learned in Mexico - Non-technical Risks in the Oil Industry
Issue 22 - April 2014: Capacity Building on Stakeholder Engagement
Issue 21 - March 2014: Above-ground Facilities and Stakeholder Engagement: Deploying the 'CAC'
Issue 20 - March 2014: A Starting Point for Shared Equity
Issue 19 - March 2014: What It Takes to Run a Great Consulting Firm
Issue 18 - February 2014: Considering Human Rights - Trends and Lessons in Oil and Gas Impact Assessments
Issue 17 - June 2013: Managing Environmental Health in International Development Projects
Issue 16 - January 2013: Integrating Environmental and Social Performance throughout the Project Lifecycle
Issue 15 - January 2013: The State of Shale Play in 2013
Issue 14 - August 2012: Building Environmental and Social Governance in Host Countries
Issue 13 - May 2012: Human Rights and Business: A New Era
Issue 12 - February 2012: Extractive Industries Confront Pressure for Greater Transparency
Issue 11 - January 2012: Key Updates to the IFC Sustainability Policy and Performance Standards
Issue 10 - June 2011: Oil & Gas and NGOs: New Rules of Engagement?
Issue 9 - February 2010: Annual Study of Sustainable Development Priorities
Issue 8 - January 2009: Annual Study of Sustainable Development Priorities
Issue 7 - May 2008: Top Ten Lessons Learned About Health Impact Assessment
Issue 6 - January 2008: Annual Study of Sustainable Development Priorities
Issue 5 - September 2007: Results of web forum with our International Partners
Issue 4 - January 2007: Annual Study of Sustainable Development Priorities
Issue 3 - May 2006: Suggestions and tips for safe international travel
Issue 2 - January 2006: Annual Study of Sustainable Development Priorities
Issue 1 - November 2005: The Top 10 “unspoken" criteria for determining the success of EIAs

 

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