Report: Oil and Gas Investors Pay When Indigenous Rights Are Not Considered

Oil and gas companies often don’t consider indigenous rights strongly enough when launching exploration ventures, says First Peoples Worldwide (FPW), a Virginia-based organization that has just released a survey on risks and challenges that extractive industries may face as they pertain to indigenous rights and properties.

The result says the study, exposes company investors to potential losses when disagreements or community protests arise.

The report, which was released at the SRI (Sustainable, Responsible Impact Investing) conference in October analyzed 52 U.S.-based companies involved in 370 extractive industry operations throughout the world. The operations were reviewed because of their presence on, near or affecting indigenous lands.

“The results are eye opening. Ninety-two percent of the sites posed a medium to high risk to shareholders,” FPW says in its October 30 press release. “This is concerning given that only five of the 52 companies had an Indigenous Peoples policy for productively engaging indigenous communities, leaving shareholders exposed to considerable risk.”

And the problem isn’t limited to today's natural gas and hydraulic fracturing ventures. Indigenous rights and land ownership have often been overlooked or underestimated in industrial development. Examples stretch back as far as the 1800s when Native American lands were converted to producing oil fields in what later became the state of Oklahoma. But more recent legal battles at Split Rock, Maine and Black Mesa, Ariz. show there are oftentimes still misunderstandings about the legal processes and impact of exploration and extraction of natural resources on indigenous lands.

The result, says the FPW, isn't just a loss of time while equipment and workers side idle during a protest. The financial cost is often significant.

John Ruggie, United Nations Special Representative, has studied the toll that is often borne by company investors when there is a shutdown due to "non-technical" issues like a protest or roadblock.

“For a world-class mining operation, which requires about $3-5 billion capital cost to get started, there’s a cost somewhere between $20 million and $30 million a week for operational disruptions by communities,” Ruggie stated in a 2011 interview with Business Ethics Magazine.

FPW's Director of Communications, Dan Morrison, said that lesson came home this week for the U.S. company Southwestern Energy (Southwestern) when its crew was stopped from carrying out testing for hydraulic fracturing in New Brunswick, Canada because of angry protests at the company's entrance.

Morrison said that the Southwestern site had already been rated has having a high risk for problems when the local First Nations band filed for an injunction.

"The big bellwether for us was the fact that Southwestern stated itself that it was costing them $60,000 a day with this protest," said Morrison, who noted that Southwestern's dilemma is a classic example of the risks that companies often face when they don't take a community's concerns into consideration before launching oil and gas exploration - particularly those of indigenous communities that may have historic and cultural ties with the area that go back thousands of years.

Morrison said that highlighting Southwestern's difficulties in the report as a way to illustrate investor risks helped to get their point across.

I couldn’t help wonder, however, why FPW chose this particular community conflict to highlight its point. The story of the Elsipogtog First Nation’s efforts to stop oil and gas exploration in New Brunswick is complex and perhaps not as clear as some U.S.-based incidents where protests have garnered success in the courts. The conflict isn’t happening on First Nations treaty lands but adjacent to it. And Canada’s indigenous rights protections are some of the most developed in the world, with nation status accorded to Canada’s Aboriginal Peoples that provides greater autonomy and speech than in the United States and many other democracies. So why would this be an ideal example by which to highlight the possible costs to investors?

Morrison said the complexity of the New Brunswick site, in fact, made it a prime example of the kinds of risk that companies - and investors - can face when doing their research

"It is exactly why we did the report," said Morrison. "(It) doesn’t matter (whether the site) is on indigenous lands or not. The fact is that indigenous peoples can block the road and make their claim and halt the operations."

And the fact that the conflict that Southwestern is now embroiled in is occurring in Canada, said Morrison, where First Nations rights are given strong consideration in the courts only helps to illustrate further the need for oil and gas companies to do their homework about the risks they may encounter before considering a project for development.

To aid oil and gas companies in learning about such issues, First Peoples Worldwide plans to publish regular updates to its risk report. Interested companies and individuals can register for email updates on the FPW website.

Image by R.A. Paterson