Managing Corporate Environmental Costs and Liabilities
Authors: Parnell J.A. , Herlugson C.J. 
Published: December 2007

J.A. Parnell, SPE, BP Exploration (Alaska) Inc., and C.J. Herlugson, SPE, BP Exploration (Alaska) Inc.

Oil and gas companies are subject to comprehensive federal, state and local laws that are increasingly restrictive and provide for an array of potential environmental liability. Many media-specific laws also provide regulatory agencies with broad discretion as to how regulations are interpreted and enforced. A company can successfully manage environmental liability and reduce costs by developing a long-term strategy that focuses on minimizing risk, managing transaction costs, and increasing credibility.

Introduction

Exploration and production companies are subject to pervasive federal, state and local laws that are becoming increasingly restrictive. Media specific laws such as the Resource Conservation Recovery Act (RCRA), the Clean Water Act (CWA) and the Clean Air Act (CAA) govern every aspect of oil and gas operations and provide for an array of potential liability. Title 40 of the United States Code (USC) contains more than 12,000 pages of environmental regulations. These laws not only provide expansive coverage, but also provide federal and state regulatory agencies with broad discretion as to how regulations are interpreted and enforced. Environmental laws provide the enforcing agency with discretion to pursue a violation through voluntary compliance, administrative enforcement, civil judicial enforcement or criminal judicial enforcement. Figure 1 illustrates the interactions between corporate strategy and external drivers.

Managing environmental liability and costs within this complex framework is the primary component of the environmental strategy developed by BP Exploration (Alaska) Inc. (BPXA) Environmental and Regulatory Affairs Department. This strategy can serve as a model for other exploration and production (E&P) companies as they strive to address increasingly important health, safety and environmental (HSE) issues.

BPXA's environmental management strategy was developed after a year-long, in-depth examination of business processes and expenditures. The strategy incorporates five main initiatives;pathway reduction,education and outreach,public performance reporting,legislative/regulatory development, andnew technology.

Managing environmental liability is critical to the overall financial health of an E&P corporation because companies are judged by their HSE performance. Incidents such as the Exxon Valdez oil spill and the Brent Spar show that high profile cases, properly framed and easily explained by third parties or the media, can ignite widespread public interest and dramatically impact a company's reputation. There is tremendous competition for investment dollars in today's global E&P industry and corporations must work to gain every advantage. Managing environmental costs and liabilities can provide a corporation with an edge for the future.

Corporate HSE Policy. The first element of a strategy to manage environmental costs and liabilities is the establishment of a corporate HSE policy, such as that of the BP Group:

"BP's Commitment to HSE Performance: Everybody who works for BP, anywhere, is responsible for getting HSE right. Good HSE performance is critical to the success of our business. Our goals are simply stated - no accidents, no harm to people, and no damage to the environment.

We will continue to drive down the environmental and health impact of our operations by reducing waste, emissions and discharges, and using energy efficiently. We produce quality products that can be used safely by our customers. Wherever we have control or influence we will:–consult, listen and respond openly to our customers, neighbours, and public interest groups–work with others - our partners, suppliers, competitors and regulators - to raise the standards of our industry - openly report our performance, good and bad–recognise those who contribute to improved HSE performance

Our business plans include measurable HSE targets. We are all committed to meeting them."

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