We seek to adopt industry best practice when managing material social responsibility issues, exceeding stakeholder expectations for governance, environmental and social performance wherever we can

Understanding climate impacts and opportunities

Building understanding of our transition risks

In 2018, Oil Search published a Climate Change Resilience Report that is aligned with the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures. The Report assessed the financial risks of climate change by examining our existing and future projects and their resilience in a range of decarbonisation scenarios, including a 2°C world.  The analysis showed there is a low risk of our low-cost assets being stranded in a carbon-constrained world. The Report also published a cost curve showing Oil Search’s LNG Expansion Project as one of the lowest-cost projects on a 2°C pathway.

During 2018, Oil Search undertook direct engagement with key investors and stakeholders to discuss our approach to climate change scenario analysis. Oil Search has continued engaging with lenders and our industry peers to share knowledge, experience gained, and lessons learned. In 2019, Oil Search will build on our experiences and knowledge by leading an IPIECA taskforce on climate change scenarios.

Case Study

Oil Search’s climate efforts recognised

Carbon Tracker is an independent financial think tank that analyses the impact of the energy transition on capital markets and publishes reports on the financial risks of climate change.

In July 2018, Carbon Tracker published its 2 Degrees of Separation report, which estimated the relative climate change transition risk of major oil and gas producers, from the point of view of potential capital expenditure committed to high-cost projects outside a 2°C pathway. The Report placed Oil Search in the top quartile for resilience to financial transition risk and found all our planned projects would be required in both a 2°C pathway and a 1.75°C pathway.

Carbon Tracker’s assessment is consistent with Oil Search’s own analysis and demonstrates to our shareholders, communities, employees and other stakeholders that our climate change risk processes are robust, and our assets have long-term resilience and value-generation in a 2°C world.

Physical Climate Change Scenario and Risk Assessment

Over time, there is the potential for Oil Search’s long-life assets to experience climate change impacts that are different to the impact of current or past climate extremes. To minimise the physical risk of climate change to our assets, we consider climate risks when developing new projects and in our planning procedures.

In 2018, Oil Search began a Physical Climate Change Scenario and Risk Assessment (PSRA) to understand and quantify the range of possible scenarios that may pose direct and indirect physical climate risks to our assets, supply chains and project area communities. The PSRA comprises three phases.

PHASE 1 PHASE 2 PHASE 3
Objective

Identify reputable climate change data to conduct a robust PSRA

Identify and assess material physical climate risks for each geographic region under a range of scenarios

Quantify physical climate change risks to Oil Search’s existing assets, supply chains and communities

Develop a methodology for assessing and quantifying these risks for new assets and exploration areas

Embed PSRA into Oil Search’s existing management and decision-making processes

Task Climate model and data assessment Geographic risk-screening Risk and consequences for existing assets, supply chains and communities Methodology for assessing new assets and exploration areas

Implement findings and embed physical risk assessment outcomes into existing business processes

In 2018 we commenced implementation of phase one of the PSRA. We partnered with a specialist advisory and analytics company with world-class expertise in climate change risk management to:

  • Assess available physical climate change models and review them based on a set of Oil Search criteria so we could identify the most suitable models and data for each geographic region.
  • Assess, identify and categorise material physical climate change risks in Oil Search’s operational geographies.

Phase two of the PSRA will commence in early 2019. Our plan is to input the assessment findings into Oil Search’s engineering and asset development plans for future assets. They will also help inform decisions about major capital expenditure design and future investments.

Strengthening methane emissions reporting accuracy

During 2018, Oil Search focused on improving our methane reporting methodology and emissions data accuracy. We conducted an extensive review of our existing reporting methodology with the support of our Production and Engineering teams. The improvements identified were used to develop a revised methodology that is now the basis for 2018 and future emissions reporting.

With the new methodology, approximately 100% of methane-venting emissions are based on measured data, compared to 20% in 2017. Using measured data improves the accuracy and robustness of Oil Search’s Green House Gas (GHG) emissions and the accuracy of our methane emissions. This improvement in accuracy resulted in a lower emissions intensity of 44 ktCO2e/mmboe in 2018 compared to 50 ktCO2e/mmboe in 2017.

Oil Search’s operated-fields GHG emissions declined by 41% in 2018, largely resulting from production shut-downs due to the earthquake. As production recovers in 2019, Oil Search’s operated GHG emissions are expected to return to pre-earthquake levels.

We also assessed the Climate and Clean Air Coalition (CCAC) Methane Guiding Principles during 2018 so we could better understand the initiative and evaluate opportunities to implement the principles. Although we are not currently a signatory, Oil Search has advanced several principles and is strongly aligned with the intent of the initiative. We will continue to evaluate options to strengthen our position with some of the other principles, including the cost and practicality of conducting fugitive methane leak detection, and options for investing in the research and development of innovative technologies and approaches.

Partnering to achieve climate outcomes

Oil Search is an active member of IPIECA’s Climate Change Working Group and is involved in several task forces and working groups. We are part of an IPIECA Adaptation Working Group that is developing a physical climate change risk methodology for the oil and gas industry; we will participate in IPIECA’s 2019 Methane Working Group, which is monitoring developments in methane reporting and learning good practice for reducing methane emissions; and we are leading the taskforce on climate change scenarios.

In November 2018, we signed a historic MoU with the PNG CCDA on collaboration for climate adaptation projects in PNG. The first project is expected to begin in early 2019 and will focus on aspects of community resilience. The findings from Oil Search’s PSRA will increase our understanding of how communities may be impacted by climate change and the material risks we need to manage.

During the year, we undertook a preliminary review of the stated climate policy positions of our member organisations and confirmed they do not conflict with our Company position.

Reinforcing climate commitments through executive remuneration

Reflecting the Company’s commitment to managing climate-related risks, Oil Search included the use of an internal carbon price as a component of its 2018 Short-Term Incentive (STI) scheme.  Oil Search achieved 100% compliance in 2018.  The internal carbon price STI will remain in 2019 and will be bolstered with a STI component focused on proactively managing methane emissions in our operating assets.

understanding climate impacts and opportunities

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Strengthening our human rights processes


Respect for human rights and the desire to do no harm underpin Oil Search’s commitment to sustainable development and our approach to operating responsibly. They help to build the mutual trust and respect within our communities that we need to maintain our social licence to operate and provide a stable operating environment.

Human Rights Impact Assessment updated

To confirm Oil Search remains focused on our most important human rights issues, in 2018 we commenced an update of our organisation-wide Human Rights Impact Assessment. This due diligence work examines the human rights risks and impacts associated with each type of Company and supply chain activity, including those associated with our power business and public infrastructure work in PNG and current and planned Alaskan activities. The work is expected to be finalised in early 2019.

The assessment includes a review of the human rights risks associated with modern slavery. This highlighted risk factors and other considerations around the potential modern slavery risks in our operations and supply chain. For more information on our approach to addressing modern slavery, see our 2018 Preliminary Modern Slavery Statement and the responsible supply chain management section of this Report.

The review results will inform several concurrent initiatives, including reviews of our grievance management system, development of human rights training, responsible supply chain management and readiness preparations for disclosures under the new Australian Modern Slavery Act.

Grievance management review commenced

A defined, scalable and culturally appropriate mechanism that implements a process of identification, evaluation and remedy for human rights grievances is a core principle of the UN Guiding Principles for Business and Human Rights and fundamental to Oil Search’s approach to stakeholder engagement and human rights risk management.

In 2018, we engaged human rights specialists to help us review our community engagement and grievance management practices and update our business requirements for the assessment, escalation, investigation and remedy of community grievances, as well as our needs for resources, training and tools. These will be progressively addressed as a part of our human rights plan.

Human rights and security

During the year, we conducted an internal review of our performance against the requirements of our MoU with the Royal PNG Constabulary (RPNGC) and our commitments under the VPSHR. We also worked with a range of key stakeholders, including the Australian and PNG governments, peers and civil society to promote understanding, respect for and implementation of the Voluntary Principles.

In 2018, Oil Search reported three incidents related to security and human rights to relevant authorities in PNG. They all involved alleged assaults by RPNGC Officers against contractors working with us or community members in our project areas. As a result of the incidents, Oil Search requested the Police command to redeploy the Police officers, which was agreed.

During the year, Oil Search’s operations in one licence area were interrupted due to community unrest resulting, in part, from the non-payment of funds committed by the PNG Government to landowners. The unrest escalated when community members unlawfully entered a well pad and involuntarily detained members of our staff. As a result of extensive negotiations, the detainees were released unharmed in less than 24 hours. The incident is the subject of an ongoing Police investigation.

More information on our approach and performance regarding human rights and security providers can be found in our 2018 VPSHR Report .

Responsible supply chain management


Responsible supply chain management

In June 2018, the Board HSSC endorsed a high-level responsible supply chain strategy that included readiness for the requirements of the Australian Modern Slavery Act, which passed in November 2018. This strategy encompasses the risks and impacts relating to human rights including modern slavery, health and safety, bribery and corruption, and the environment for the supply of goods and services. From 2019, progress against the strategy workplan will be overseen by a responsible supply chain governance structure, including an executive Steering Group and subject matter expert working groups.

During 2018, we focused on risk and impact identification to underpin the workplan for 2019. This included conducting a preliminary assessment of the potential risks and impacts inherent in the Company’s use of PNG landowner companies, as well as working with a human and labour rights specialist to develop a supply chain mapping approach for 2019. The results of the Human Rights Impact Assessment and Modern Slavery Review conducted during the year will also inform this process.

The Company’s transition during the year to a new enterprise management system will help facilitate several responsible supply chain management objectives by improving controls, governance and oversight of key elements of supplier and contractor management, including supplier pre-qualification and performance.

Under the Australian Modern Slavery Act, in 2020, Oil Search will be required to issue a Modern Slavery Statement that covers our supply chain. In anticipation of this requirement, and to signal our commitment and intent, we have prepared a Preliminary Modern Slavery Statement to provide an overview of our planned approach.

Prioritising safety

Prioritising safety 1

Prioritising safety 2

The remote nature of much of Oil Search’s areas of operation and factors such as dense, steep jungle terrain and Arctic environments, present unique challenges for safety management. Our complex supply chain involves multiple contractors who transport personnel and equipment using rivers, bush tracks, ice roads and helicopters. Occasionally, these challenges are compounded by the risk of natural disasters, including landslips, flooding and earthquakes.

The devastating PNG earthquake in February 2018 is one example. It required Oil Search to rapidly transition from planned production, drilling and exploration activities into emergency response, recovery and remediation as well as a return to safe and reliable operations. Thanks to the consistent use of safety processes and procedures, our earthquake recovery and response was completed with zero recordable injuries, despite having limited access to IT systems and communication mechanisms. Prioritising the safety of our people and the community, Oil Search deployed geotechnical experts to earthquake-affected areas to assess structural stability and develop geotechnical risk profiles so we could confirm safe access before commencing remediation construction works.

The earthquake response and recovery operation was one of several high-risk activities in 2018, along with two extensive heli-portable seismic acquisition programmes, two exploration drilling campaigns, two well workover programmes, an offshore surface diving campaign and the commencement of Alaskan ice road construction.

Despite the high level of significantly risky activity, our Total Recordable Injury Rate (TRIR) decreased from 1.93 in 2017 to 1.58 in 2018. There were no fatalities and two lost time injuries recorded across our global activities, so the Lost Time Injury Rate (LTIR) decreased from 0.34 in 2017 to 0.19 in 2018.

The decrease in injury rates was mostly due to:

  • An improved performance from our PNG production operations, which experienced two recordable injuries during the year compared to six in 2017.
  • The implementation of a safety intervention and improvement plan in response to an early spike in recordable incidents with PNG frontier exploration projects.
  • Comprehensive preparations for our Alaskan ice road construction and drilling readiness activities.

While the injury frequency rate improved, Oil Search experienced an increase in the High Potential (HiPo) incident frequency rate, which rose from 0.68 in 2017 to 1.11 in 2018. This was due to several near-miss incidents with the potential to result in serious injury or fatal consequence. All HiPo incidents are subject to detailed incident investigation and analysis and the development of associated corrective action and prevention programmes.

The Oil Search safety management approach focuses on the cornerstone principles of strong safety leadership, planning and risk management. In PNG we implemented the Plan, Do, Check (PDC) programme in 2018. This emphasises planning work and managing and measuring its execution, while continually monitoring work quality in accordance with the plan. PDC uses the 10 Oil Search Life Saving Rules as the foundation for identifying and managing risks. Due to the success of this programme, in 2019 it will be strengthened within PNG’s production and operations support and extended to seismic, exploration and drilling safety management plans. We will also develop a global safety management system that supports both our PNG and Alaskan activities.

Process safety

Process safety at Oil Search focuses on managing the hydrocarbon loss of containment hazards that are associated with drilling and production activities. These can lead to loss of life, environmental damage and asset destruction.  We have a Process Safety Framework to manage the hazards, ensuring that robust controls are in place to mitigate them.

Our key process safety focus in 2018 was a safe and sustainable return to service after the earthquake. This required initial shut-in of all facilities, followed by detailed inspection, assessment and fit-for-service testing for wells, pipelines and production facilities before the assets were brought back online.

Despite the significant potential impact of the earthquake, we experienced no Tier 1 process safety events (PSEs). There were three Tier 2 PSEs, none of which were directly related to the earthquake.

During 2018, Oil Search introduced measures to continually improve process-safety-related systems and reduce risks related to major hazards. They included:

  • Development and approval of our Basis for Safe Operations for all production facilities.
  • A third-party well control audit and subsequent well blowout contingency planning emergency response exercise for PNG drilling.
  • A third-party Permit to Work audit.
  • A focus on process alarm management, with significant reduction in alarm counts at all facilities. The net benefits of alarm reduction include improved process stability and lower demands on safety systems.
  • Improved compliance with the safety-critical equipment preventative maintenance schedule.
  • Continued improvement of our training and competency assurance processes.

Emergency preparedness and crisis management

Oil Search’s goal is to create a controlled work environment where people and assets are safe and our impacts on the environment and project area communities are minimised. Contingency measures become critically important during unplanned events and having a robust emergency and crisis response plan helps to ensure we will be able to minimise their impact.

The PNG earthquake was a major test for our crisis and emergency preparedness. We learned a valuable lesson regarding the importance of having communication mechanisms such as mobile phones available during a country-wide crisis. We have responded by strengthening our emergency management communications capability and will conduct regular earthquake response drills for our key project sites.

To prepare for the 2018/19 ice season in Alaska, in line with our emergency preparedness and crisis management prevention plans, we conducted a critical incident response training exercise with relevant authorities in Anchorage during November 2018. This exercise was monitored by local and State Authorities, who approved Oil Search’s preparedness and capability to conduct the 2019 ice season drilling programme.

Managing resources responsibly

Our oil and gas operations take place in some of the most remote and environmentally sensitive regions in the world. Extracting and processing hydrocarbons can pose a risk to the natural environment, so our facilities and management systems have been designed to manage these risks to the lowest level reasonably possible. More information on our environmental management approach is on our website.

Managing our environmental impacts

Managing our environmental impacts

Our facilities in PNG were impacted significantly by the 2018 earthquake. Inspection of production assets indicated the integrity of our infrastructure had been maintained and there was no loss of containment of hydrocarbons. Inspection of our drilling operations identified an unintended release of chemicals stored in a tank (benign saline solution) as a result of a landslide. This resulted in a release of 67,407L and was low impact and within the permitted discharge limit and material type prescribed by the Company’s environment permit.

The number of spills (>1bbl) that reached the environment in 2018 increased to nine, compared to five in 2017. Three of these incidents were attributed to damage caused by the earthquake in our non-production facilities and the remainder were due to increased transportation activity involving the movement of liquids and mechanical faults. A performance improvement plan was developed in late 2018 to monitor our spills performance and implement actions to minimise reoccurrences.

After the earthquake, we strengthened governance around managing the environmental impacts associated with our activities by re-introducing a High Priority Tracker. The Tracker consolidates and prioritises requirements from our environmental permit, our operational plan and findings from periodic ISO 14001 audits, and act as a consistent and effective management tool for prioritising and managing actions. The Tracker was commended by independent external auditors during our most recent environmental management system audit (ISO 14001:2015), which was completed in November 2018 with no major non-conformances reported.

In 2018, we signed a waste management facility-sharing agreement with ExxonMobil that facilitates shared access to waste-processing facilities. The agreement will achieve efficiency gains through increased capacity, improved waste management and reduced maintenance and transportation costs.

During the year, the PNG Chamber of Mines and Petroleum established an Environmental Committee, and Oil Search is an active participant. Comprised of environmental managers from a number of resources companies in PNG, the Committee acts as a local industry body for environmental matters and facilitates collaboration between peers to review issues and provide technical feedback.

In Alaska, we conducted numerous field-based environmental studies on water, air and fauna to ensure our ice roads had a minimal impact on the environment. We also initiated an air monitoring programme to develop a baseline to ensure that air emissions associated with the winter drilling season were minimised and did not impact local communities. As part of the programme, air emissions reduction initiatives were implemented, including one on drilling rig generators, to limit air emissions from both generators and testing equipment.

Strategic biodiversity management

Oil Search actively works to mitigate our impacts on biodiversity by recognising that these ecosystems support a variety of species and contribute to the sustenance of local communities.

In 2018, we continued bringing together our initiatives under a Biodiversity Strategy that is currently being developed. This will provide a strategic framework for preserving biodiversity value in our operational areas. Once finalised, the Strategy will focus our efforts on ensuring biodiversity values are adequately identified and considered through the implementation of a management hierarchy of ‘avoid, minimise, mitigate and offset’.

During the year, Oil Search’s Eastern Fold Belt seismic programme completed phase one of its activities in the protected Crater Mountain Wildlife Management Area of PNG. We actively engaged local communities and obtained permission from the Crater Mountain Wildlife Management Area Committee for this activity. An evaluation of the implications of working within this protected area was undertaken, and our seismic work was determined to be a low biodiversity risk. A site-specific Environmental Management Plan with stringent environmental requirements applies to this programme and is supported by ongoing risk assessments.

Engaging over our Alaskan footprint

As part of the requirements of Oil Search’s proposed development in Alaska, the U.S. Army Corps of Engineers prepared an Environmental Impact Statement (EIS) that evaluated potential environmental and social impacts associated with the Nanushuk Oil Development project in accordance with relevant regulatory requirements. Oil Search actively participated in the EIS by providing detailed information and commissioning background environmental studies. These included an analysis of potential environmental impacts and the proposed avoidance and mitigation measures that have been incorporated into our project design.

Developing the EIS created opportunities for North Slope Alaska Natives and the wider community to provide information on local resources, voice concerns, and understand potential impacts. The EIS was completed in early November 2018 and a decision on the permit approval is anticipated to be made by the regulator in early 2019.

In 2018, Oil Search began acquiring all the necessary permits and approvals for conducting a multi-well winter appraisal drilling campaign in the Pikka Unit. This included approximately 50 different permits/approvals from a range of different State and Federal regulators, including those responsible for environment, natural resources and conservation and fauna.

Since the drilling locations were located on land owned by traditional Indigenous owners, Oil Search proactively engaged with the recognised local village corporation (Kuukpik Corporation), to secure appropriate levels of approval from the recognised landowner.

Operating with integrity

Code of Conduct

The Oil Search Code of Conduct represents our commitment to upholding ethical business practices that meet or exceed applicable legal requirements. We believe a consistent and principled approach to conduct builds trust and generates stakeholder support.

In June 2018, we strengthened our Code of Conduct to include new guidance around personal relationships within the organisation. This reinforces our approach to managing conflicts of interest and ensures that all decisions regarding a person’s work, entitlements or position/standing in Oil Search are made without bias or discrimination.

During the year, Oil Search investigated all reported and suspected breaches of the Code of Conduct. After appropriate investigations, 11 records of discussion or written warnings were issued, one termination occurred, and one employee resigned. The breaches related to harassment and bullying; policy or procedures; and health, safety, environment and security. No instances of discrimination were reported.

One call was made to our Whistle-blower Hotline during the year relating to conflict of interest. The issue was investigated, found to be unsubstantiated and closed out via our whistle-blower process.

Payments transparency

Oil Search supports and advocates for improved transparency of payments made to governments by extractive companies, and we voluntarily disclose our payments.

Our 2018 Transparency Report and Data Centre summarise information about socio-economic payments we made in 2018 to countries where Oil Search has a presence. This information also informs our Extractive Industries Transparency Initiative (EITI) submission for PNG.

We are long-time supporters of PNG’s journey towards compliance with the EITI, and in 2018, continued to work with the PNG Government, civil society and industry peers to support its implementation in PNG.

operating with integrity

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Measuring our social performance

Measuring our social performance

Understanding the actual and potential social impacts of our operations and sustainable development projects is essential. It underpins our approach to social responsibility, helping us realise opportunities and mitigate impacts.

Based on current assessments, production of oil and gas in Oil Search’s Gobe oilfields is expected to reach its end-of-life over the medium-term, requiring some assets to be decommissioned. The potential transition represents the first of its kind in the oil and gas sector in PNG. To effectively manage it and ensure we set a positive precedent for the asset-planning process, Oil Search developed a detailed Gobe Social Performance Framework in 2018 for long lead-time implementation.

The Framework provides an overview of the key social performance deliverables for the transition, along with operating principles and practices for managing stakeholder and social outcomes. It is based around socio-economic baseline studies and a socio-economic impact assessment; encompasses plans to engage with local communities; Lancos and the PNG Government in transition planning; provides genuine opportunities for consultation; and aims to establish local ownership and acceptance of project outcomes.

A Sustainable Development Plan will address aspects such as health, education, livelihoods, access to energy, infrastructure planning, and water and sanitation. It will also identify appropriate partners to deliver each development priority and involve an extensive stakeholder engagement process that ensures strong community ownership and acceptance of outcomes. The plan will be implemented and rolled out over the next five years, starting in 2019.