Petroleum Contract Compliance and Inspection

4.    Environmental Impact Assessments (EIAs)

Environmental impacts take place along the entire oil and gas sector. Even at the early stages in the life cycle of an oil or gas investment, the seismic testing and test drilling of exploration wells can generate various, short term impacts, often in remote and environmentally sensitive areas. If the activity moves on to other stages such as development and production, the impacts will grow.

There is no international law governing the process for or details of EIAs. However, international institutions may set obligations relating to environmental and social aspects of projects. For instance, the World Bank has Environmental Assessment as one of its ten environmental, social and legal Safeguards Policies. It is used by the World Bank to identify, avoid and mitigate the potential negative environmental impacts associated with its lending operations.

Most governments adopt national legislation on Environmental Impact Assessments as part of their industry and the level of stringency of such regulations varies across jurisdictions. In the US for instance, drilling operations on private property conducted under privately negotiated contracts (for example, leases or pipeline right-of-way agreements) are subject to the lowest level of EIA scrutiny. By contrast, wells which are drilled in the Gulf of Mexico need a strict permitting process overseen by the Bureau of Safety and Environmental Enforcement.

EIA documents typically include: a project summary; all the possible proposed actions and mitigation methods; baseline environmental data; environmental consequences; and the process of consultation with the local communities. The scope and extent of the EIAs may vary according to the nature of the project, the characteristics of the site and its environment and the effectiveness of the implementation of environmental management instruments to prevent pollution and to mitigate and control impacts.

In carrying out inspections on compliance with the undertakings of the companies under the EIAs, particular attention should be given to the atmospheric impacts derived from flaring and venting of excess gas, aquatic impacts through the generation of liquid waste in drilling fluids, chemicals for well treatment, drainage water, sewerage and sanitary waste, spills and leakage and cooling water, terrestrial impacts by contamination from spills or leakage, solid waste disposal, or site construction, ecosystem impacts, deforestation from on-site operations, oil leakages spilling, decommissioning of installations and structures at the end of their commercial life.

Environmental standards need to be realistic and to reflect the institutional capacity of government to monitor compliance. Resource-rich developing countries have an opportunity to take into account international good practice when developing EIA legislation and inspection regulations. In presenting their plans for approval by government, oil and gas companies may reasonably be required to demonstrate that they have the organisational capacity to comply with such laws and regulations.