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Social License in Oil and Gas Industry

What do you understand by the term ‘social licence’ or ‘social licence to operate’ in the context of the oil and gas industry? With reference to examples discuss how the concept of social licence to operate is significant for oil companies?

Social license to operate (SLO) refers to the approval and acceptance level by stakeholders and local communities to accept the projects going on in an oil and gas industries (Black 2013). According to the recent trend of corporate social responsibilities oil and gas industries must need permissions from the government as well as from the society to conduct their mining projects. This report is focused on the operations of social license tool in oil and gas industries to manage their socio-political risks and challenges. Oil and gas industries recently face serious problems related to hydraulic fracturing; as a result oil and gas explorations are increasing day by day (Cotton, Rattle and Van Alstine 2014). Therefore, development of social license is a very vital aspect for company's long-term profit and good reputations. In the following sections, some specific areas will be identified to apply these social license policies.

Oil and gas industries promised to older social and economic developments through capacity building and local contents, including providing education, energy, and technology transfer and job creation (Eccles and Serafeim 2013). With the support of local communities, these industries would be unable to precede their projects. Therefore, these industries are ready to adopt and maintain their social license policies with the approval of local communities and stakeholders to manage their social and environmental impacts. Through this social license, oil and gas industries create social values with additional activities (Epstein and Buhovac 2014). Now a day, most of the oil and gas companies engages the requirements of local contents into their regulatory frameworks. These conditions help to promote the brands of the organization to get the support from local communities and society. By the use of social license policies, companies can generate local strategies to achieve commercial as well as social benefits for the community as well as for the society (Esteves, Coyne and Moreno 2013). This social license operation engages community and social investment program which helps to build the positive and strong relationship with the local, national, regional stakeholders and enhance the opportunities for the community to get benefits from the oil and gas companies.

The social license is granted by operational process of industries and sites (Ford, Steen and Verreynne 2014). It can become so difficult to give the permission for the social license if the project of oil and gas industries has larger effects on the social, cultural and environmental resources.      

Achieving and Granting Social License

Social License Framework

Figure 1: Social License Framework

(Source: Henisz, Dorobantu and Nartey 2014, pp-1730)

Since the last few years, researchers have been allowed to recognize the components of social license, which is comprised of social legitimacy, the credibility of the oil and gas project and absence or presence of trust. These elements are required to build the network of social license. The absence of legitimacy and credibility can reject a project. When a high level of trust between the employees and local community can be engaged in the oil and gas projects, the means of the social license can be justified.

Social Legitimacy: This is based on the established social norms, which includes legal, cultural and social standards of the community. Oil and gas industries must understand and knows the community norms to work with the social requirements and approval (House 2013). In order to maintain this process, community members should be engaged in the project to provide effective decisions for future improvements.

Credibility: Proper credibility can be created if the employees of the organization provide clear and true information to the local people and stakeholders about the projects, its effects and its impacts on the environment (Lacey and Lamont 2014). Credibility can be established and maintained with the use of formal agreement applications. These formal agreements are comprised of roles, responsibilities and rules of oil and gas companies are defined, negotiated and consolidated. The above framework of social license reduces the explosion risks generated from the oil and gas industries and manage the expectations of the local people.

Trust: True trust can be occurred from shared experiences. Employees of the company, as well as the local community and stakeholders, should try to maintain a strong relationship between them (Lertzman, Garcia and Vredenburg 2013). The companies should always try to create greater opportunities for the local people beyond transactions to work together, collaborate and generate shared experience process so that companies will be able to grow towards large developments.

In order to maintain and obtain social license operations, industries must build a strong relationship with the stakeholders. Some researchers recommend that oil and gas industries, mining companies, governments and local communities must undertake trilateral negotiation principles for the projects for better communication purposes (Maconachie and Hilson 2013). There is no such formula to maintain SLO, but some principles are needed to maintain strong relationships. Good relationships can be built on mutual respect, open communication, honesty, and disclosure of confidential information, engagement of stakeholders in the exploitation and exploration process of oil and gas industries (Noble et al. 2013). Oil and gas industries must be sensitive to the local norms, to create proper expectations, to develop fair resolution mechanisms.

Principles Necessary for SLO in Oil and Gas Industries

In today's low price gas and oil environment, security of social license is crucial for oil and gas companies.  PWCs (Protecting License to Operate) strategies help to examine the internal and external obstacles and challenges faced by the companies and help to eliminate these problems forever. These obstacles occur from social obstacles such as local community resistance (Parsons, Lacey and Moffat 2014). Oil and gas industries are facing increased expectation from the customers to improve these problems for the good fare of the society. In order to maintain the security of SLO in oil and gas companies, the authorities of the organization must keep their commitments and promises and should respond to the communities' requests and concerns properly (Raufflet, Cruz and Bres 2014). Information and facts provided by the company should be understood by the stakeholders properly and communities engaged in the particular project must be treated as honest and responsible behaviors.

In order to use social license concept, shale development areas have been identified, which is facing challenges due to hydraulic fracturing and horizontal drilling processes. Shale development areas of oil and gas industries face threats and challenges from the local community due to the lack of legal license and social license (Small 2014). Local people and communities have addressed their concerns for the impacts generated from these shell resources such as increased noise, dust and air pollution (Williams and Walton 2013). Potential hazards such as personal health safety are consistent due to the technologies involved in this process.

 Environmental Impacts of Shale Gas Developments

Figure 2: Environmental Impacts of Shale Gas Developments

(Source: Lopez et al. 2013, pp-190)

From the above statistical graph it has been indentified that shale gas developments has marginal affects on the environmental resources. The pollutants and hazardous gases generated from this industry can leads to environmental pollutions, however, advanced tools and technologies used in this process can minimize the impacts at greater extent.

Hydraulic fracturing and horizontal drilling are two distinct technologies used in oil and gas industries for production and drilling operations. In horizontal drilling process, operator drills laterally by covering more surface area of shale resources (Mai et al. 2013). On the other hand, hydraulic fracturing allows the operator to inject sand, water, and chemical through a geologic formation process to make fractures in the rocks so that flow of gas and oil can be increased with low permeability. In this aspect, use of the social license in shale gas boom is vital, as its development is associated with the attention of regulators, industry, public and scholars. Theses shale resources are used to produce natural gas which is considered as the cleanest fuel energy in this growing world (Davidson et al. 2013). This natural gas has several uses in residents as well as in industries. Compared with other fuels it releases lesser harmful pollutants in the air and has fewer impacts on the environmental resources. But the production, drilling, exploration and consumption process of natural gas development are related with environmental footprint.

Security for Social License to Operate

From a survey, it has been discovered that drilling process and in the production of natural gas, groundwater became contaminated, air pollution is increased day by day due to the harmful release of methane and most importantly local communities are significantly affected (Bazilian et al. 2013). That is why it has become necessary to apply for social license at the grass root level of natural gas development-shale development. Therefore, the oil and gas companies, who want to develop their business with shale gas extraction project, must consider the social and environmental impacts for public acceptance (Arent et al. 2013). This social license is an advanced tool, by which companies will be able to manage socio-political threats and risks by enforcing some rules and principles suggested by their stakeholders.

This will help to create a social contact with local communities to allow the gas development project and to continue it for social developments. While talking about this social license, it is very vital to identify appropriate and perfect stakeholders from whom this license can be earned (Ketilson et al. 2013). Stakeholders are a group of people who are affected or can create effects on the achievement of company's objectives. Therefore, oil and gas companies must consider this thing very carefully that in the evaluation process of social license involvement of proper stakeholders can create success or can fail a whole project. In the above section, conceptual elements of social license to operate have been drawn, and each of that has its significance in the oil and gas industries (Aitken et al. 2013). In order to achieve this license and potential supports from local communities and stakeholders, industries must establish three major rules which are credibility, legitimacy, and trust. Legitimacy will help to spread awareness of this shale gas development process related to the local communities' concerns by following their local norms (official and unofficial), practices and customs (Poelzer et al. 2013). In order to establish this legitimacy process, oil and gas companies must present their legal status to inform the local people about the projects and its past success. Then they must approach the people to participate in the project to make proper plans and decisions for the company. The second rule is to establish credibility with honest promises and commitments. This can be achieved by providing authentic information about the gas development project to the consumers with transparent and consistent decision making process (Stern et al. 2014). A strong relationship cannot be built overnight; it needs trust. Credibility is the foundation of full trust, which contributes to drag more and more consumers towards their organizations. When people can easily trust an organization that whatever, they are doing will be benefitted for the society and the humanity. Once, the oil and gas industry achieves trust from their local community people; their project will contribute to gain greater success on their projects beyond their imaginations.

Identification of the Areas to Use Social License Concept

 Measurement of Social License to Operate

Figure 3: Measurement of Social License to Operate

(Source: Bomberg et al. 2013, pp-8295)

Based on the elements of the social license to operate, industries can achieve different levels of this process which comprises of acceptance, withdrawal, psychological identification and approval. However, psychological identification and approval of a gas development project are popular related with the evolution of license programs (Christopherson et al. 2014). Approval of shale gas boom development can be achieved if and only if Oil and Gas Company establishes both the credibility and legitimacy inside the organization. In this aspect, communities views will be prioritized first, which will help the industries to access the shale development resources with proper security and no risk is associated with the project (Goldstein et al. 2014). Psychological identification makes a strong relationship between the community and the authorities of the company to improve the projects for social as well as for environmental benefits.

Conclusion

Researchers and critiques have drawn an impactful conclusion from the assignment that social license to operate in oil and gas industries is very important to gain support from the local communities for achieving greater support. It is very vital to implement these kinds of rules in these industries because these organizations extract renewable and nonrenewable mineral resources for their gas development process, which has several issues related to depletion of natural resources and conservation of resources. Then, the explosion from these industries has greater potential risks to the humanity as well as to the society. Therefore, with the developments of proper credibility, legitimacy and trust with the stakeholders and local communities, these industries will be able to earn the social license in their organization for future developments of their projects as well as for greater potential opportunities for the organization as well. The rules and principles enforced by social license will relate internal risks with external expectations to achieve greater profit in future.

References

Black, L., 2013. The social licence to operate: your management framework for complex times. Do Sustainability.

Cotton, M., Rattle, I. and Van Alstine, J., 2014. Shale gas policy in the United Kingdom: An argumentative discourse analysis. Energy Policy, 73, pp.427-438.

Eccles, R.G. and Serafeim, G., 2013. The performance frontier. Harvard business review, 91(5), pp.50-60.

Epstein, M.J. and Buhovac, A.R., 2014. Making sustainability work: Best practices in managing and measuring corporate social, environmental, and economic impacts. Berrett-Koehler Publishers.

Esteves, A.M., Coyne, B. and Moreno, A., 2013. Local Content Initiatives: Enhancing the Sub-National Benefits of the Oil, Gas, and Mining Sectors.Rev. Watch Inst.

Ford, J.A., Steen, J. and Verreynne, M.L., 2014. How environmental regulations affect innovation in the Australian oil and gas industry: going beyond the Porter Hypothesis. Journal of Cleaner Production, 84, pp.204-213.

Henisz, W.J., Dorobantu, S. and Nartey, L.J., 2014. Spinning gold: The financial returns to stakeholder engagement. Strategic Management Journal,35(12), pp.1727-1748.

House, E.J., 2013. Fractured fairytales: the failed social license for unconventional oil and gas development. Wyo. L. Rev., 13, p.5.

Lacey, J. and Lamont, J., 2014. Using social contract to inform social licence to operate: an application in the Australian coal seam gas industry.Journal of Cleaner Production, 84, pp.831-839.

Lertzman, D., Garcia, P. and Vredenburg, H., 2013. Corporate social responsibility in Latin America’s petroleum industry: a national oil company’s strategy for sustainable development. International Journal of Business Innovation and Research, 7(2), pp.185-208.

Logan, J., Lopez, A., Mai, T., Davidson, C., Bazilian, M. and Arent, D., 2013. Natural gas scenarios in the US power sector. Energy Economics, 40, pp.183-195.

Maconachie, R. and Hilson, G., 2013. Editorial introduction: the extractive industries, community development and livelihood change in developing countries. Community Development Journal, 48(3), pp.347-359.

Noble, B., Ketilson, S., Aitken, A. and Poelzer, G., 2013. Strategic environmental assessment opportunities and risks for Arctic offshore energy planning and development. Marine Policy, 39, pp.296-302.

Parsons, R., Lacey, J. and Moffat, K., 2014. Maintaining legitimacy of a contested practice: how the minerals industry understands its ‘social licence to operate’. Resources Policy, 41, pp.83-90.

Raufflet, E., Cruz, L.B. and Bres, L., 2014. An assessment of corporate social responsibility practices in the mining and oil and gas industries.Journal of Cleaner production, 84, pp.256-270.

Small, M.J., Stern, P.C., Bomberg, E., Christopherson, S.M., Goldstein, B.D., Israel, A.L., Jackson, R.B., Krupnick, A., Mauter, M.S., Nash, J. and North, D.W., 2014. Risks and risk governance in unconventional shale gas development. Environmental science & technology, 48(15), pp.8289-8297.

Williams, R. and Walton, A., 2013. The social licence to operate and coal seam gas development. A literature review report to the Gas Industry Social and Environmental Research Alliance (GISERA). March 2013. Retrieved 30 March 201

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