Social Licence to Operate - Non-Technical Risk in New Field Development
Authors: Laking Steve , McNicoll Ingeborg 
Published: October 2013

Social Licence to Operate - non-technical risk in new field development.

The term Social Licence to Operate describes broad public acceptance of a proposed development and winning this licence and maintaining it, requires that the Non-Technical Risks (NTR) associated with a project be addressed effectively as regarded by the many stakeholders involved including the community at large. NTR is a phrase increasingly used in the energy industry to refer to the commercial impacts of issues such as health, safety, environment and community performance. Non-Technical Risk can impact a capital project in many different ways, most commonly through significant project delays, cost and schedule overruns, and in some extreme cases, the inability to develop fields or assets, all of which result in direct erosion of Net Present Value (NPV). While these topics have been clearly on the radar for years, their importance as core business challenges is only recently coming into sharp focus. ERM has conducted research on causes of delay or failure of over 100 of capital projects by major companies in the oil and gas and mining industries and this paper will share the results of this research in terms of root causes (as may relate to social and environmental effects) and possible ways of combatting these early in the process. Accounting for non-technical risks in the same way that any other technical risk is analysed can help plan the management of these non-technical issues that will prevent those risks becoming problems later in the lifecycle of the project. With the appropriate skills, approaches, tools and data, these risks can be characterised, reasonably well quantified and managed as robustly as any other business risk. Indeed addressing these types of risks holistically can bring competitive advantage and this paper presents insights as to how this can be achieved.

Introduction and Methodology

This paper summarises research completed by ERM on causes of delay on major projects projects (completed in both mining and oil and gas sectors) utilising data available in the public domain. The data presented are focused on oil and gas major capital projects and the objective of the research was to understand better how the causes, and therefore the significance, of delay to these projects; especially as they relate to environmental and social aspects.

Delays are only one of the consequences of risks. Any kind of delay can be extremely costly particularly if delays occur during construction (maximum NPV erosion occurs after first CAPEX is spent). Project execution on time (and on budget) provides a good proxy for the company’s ability to implement their growth strategy. Repeated failure will erode shareholder value. Project delays do not arise only in developing economies as is sometimes assumed, there is evidence to suggest that delays are just as likely in developed economies and an analysis of geographic spread of project delays (in both oil and gas and mining sectors) underlines this.

In his book Industrial Megaprojects; Concepts, Strategies and Practices For Success, Merrow took a similar approach and concluded that vast majority of mega projects failed when measured against success critieria including delay, cost overrun, and production expectations. This research takes a similar approach but focusses on the impacts of Non Technical Risks on project delivery.