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The 17th World Petroleum Congress, Rio de Janeiro, Brazil Block 4 Forum 3: Establishing Enhanced Credibility and Reputation

n in the Petroleum Industry Through Social Audits and Independent Verification ---------------------------------------------------------------------------------------------------------------------------------------

Preparing for verification and monitoring


John B. McWilliams, Nexen Inc., Canada, Laura de Jonge, Nexen Inc., Canada Abstract
Nexen Inc. is a dynamic, high growth, international oil, gas and chemicals company with roots in Canada and operations that branch worldwide. Globalization, social justice concerns, environmental issues, competitive labour markets and advances in technology have forever altered the playing field for companies like Nexen. In response to these emerging issues, Nexen has implemented its Integrity Program which takes a triple bottom line approach aimed at integrating economic, environmental and social considerations into strategic direction and planning. Eventually, Nexen will subject its approach to external, independent verification to assure completeness, accuracy and rigor of systems. Nexen is actively preparing for verification. It has been an evolutionary process dating back to the early 1990s. Over the years, organization and responsibilities, formal reporting and the performance of audits, assessments and inspection have all evolved in response to societal changes. Currently, Nexen is in the process of revitalizing its management system. In addition, by engaging in global initiatives, Nexen has progressively adopted procedures and practices to ensure continuous improvement. This paper will describe the evolution of Nexens reporting and portray the global networking milieu in which Nexen is expanding its understanding of corporate social responsibility. The paper will also illustrate how Nexen has enhanced its reporting system and participated in global initiatives which have led to the implementation of Responsible Care at its sour gas production and processing operations in Calgary, Canada.

Introduction
Nexens core oil and gas activities include exploration, development, production and marketing of crude oil and natural gas. It is also a global producer of bleaching products which are sold primarily to the pulp and paper industry. Corporate social responsibility (CSR) is defined by the World Business Council on Sustainable Development as the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as the local community and society at large. In the last few years, Nexens approach to CSR has become more comprehensive and operationally integrated. Nexens five pillars of CSR are: business practices, community investment, employee relations, safety and environment, and customer and supplier relations. Nexens Integrity Program is the vehicle by which it implements CSR. It focuses on ensuring that Nexens commitment to CSR is more than simply words. Nexen has successfully translated its definition of CSR into comprehensive and innovative practices which benefit the company and its stakeholders. Nexen sees CSR as an area of emerging global importance. Besides being the right thing to do, fostering a culture of integrity has ensured that Nexen adds shareholder value over the long term and makes a difference in its broader sphere of influence.

History
While Nexen been doing the right thing for many years, there wasnt a systemized and disciplined approach to CSR issues. Nexens reporting of CSR has evolved over a number of years. 1990 - Nexen established an Environment, Health and Safety (EH&S) Committee of its Board of Directors. Safety and environmental assessments were conducted.

1991 - A Vice President, Environment, Health and Safety was hired; third-party environmental assessments and audits started being conducted. Public perception around safety and environmental health issues connected to Nexens sour gas operations became a significant issue. Nexen initiated a significant public consultation process that was successful in resolving the highly-charged issue of sour gas development near a populated area. 1992 - An international community affairs program was developed and implemented in Yemen. Since that time, community affairs programs have been put in place at all locations where Nexen operates. Nexen started collecting and tracking contractors safety statistics. 1993 - A combined partners safety audit was conducted in Yemen. The province of Alberta, Canada enacted the Alberta Environmental Protection and Enhancement Act which guaranteed public participation in decisions affecting the environment including increased access to information, participation in the Environmental Assessment and Approval Process and the right to appeal certain decisions. 1994 - Nexen began developing and implementing a company-wide computer based data management and reporting system. Nexen also achieved Round 1 external verification that its Chemicals division had successfully implemented the Responsible Care initiative which it had started developing in 1991. 1995 - Nexen began participating in Canadas Voluntary Climate Change Challenge (VCR), a program aimed at meeting Canadas commitment to stabilize greenhouse gas emissions pursuant to the Kyoto Protocol. 1996 - Nexen contributed a case study to an IPIECA publication focused on demonstrating the upstream industrys capabilities to operate with minimal impact in sensitive ecosystems. Nexen also became involved in championing development of business principles for Canadian businesses with interests in Nigeria, particularly concerns regarding human rights and environmental issues. Over the course of developing these principles, the scope expanded to include all international business conducted by Canadian corporations. 1997 - Nexen was recognized by Canadas Minister of Foreign Affairs for leading and facilitating the development of the International Code of Ethics for Canadian Business. 1998 - Nexen published its first public EH&S Annual Report providing stakeholders with an opportunity to scrutinize EH&S activities and performance for 1997. 1999 - Nexens commitment to integrity management was reconstituted and added to the mandate of its EH&S Department. That year, feasibility studies were commenced regarding the possible adaptation of Responsible Care to Nexens oil and gas operations. Nexens EH&S staff led the development of a voluntary Canadian Association of Petroleum Producers EH&S Stewardship Program. 2000 - To better reflect its broader mandate, the EH&S departments name was changed to Safety, Environment and Social Responsibility (SESR) and additional expertise in public consultation, remediation and data analysis was brought on. An Integrity Team was appointed and charged with developing and delivering integrity training for all employees. Formalized social responsibility reporting began to the Board of Directors. Nexen committed itself to the United Nations Global Compact. Following the 1992 sour gas consultation forum, Nexen took a leadership role with industry and community groups in establishing a new public consultation forum in the northeast region of Calgary and surrounding communities. The Airdrie and Area Public and Petroleum Producers Awareness Alliance (APPA) committee provides a multistakeholder forum for communicating, addressing and resolving public concerns about petroleum activities and energy development. 2001 - Responsible Care implementation in Nexens oil and gas operations commenced. Integrity training was delivered to over 1,800 employees and contractors company wide in their operating language. Nexen was included on the Dow Jones Sustainability World Index for the first time. Canadas national newspaper, the Globe and Mails Report on Business ranked Nexen 28th in its list of the top 50 companies in Canada. A process to refine and revitalize Nexens existing Management System was initiated.

This evolution of reporting continues as new tools become available and new ways of engagement develop. Nexens involvement with the broader international CSR community also contributes to the process. More details of these important relationships are described later in this paper.

Overview of Management Systems


Nexen has maintained comprehensive SESR management systems for many years. These systems are currently being integrated into a package that is comprised of eleven elements which are supported by statements of principle. The eleven elements include: Management and Leadership Regulatory Compliance Hazard Assessment and Management Social Responsibility and Integrity Management Emission, Waste and Environmental Liability Management Documentation and Procedure Management Training and Awareness Communication and Public Consultation Emergency Response Incident Reporting, Investigation and Follow-up Continuous Improvement

Each of the elements is supported by a series of Standards that describe the expectations that each of the Companys operations is expected to attain and against which their performance is measured and verified. The eleven elements of the SESR management system are still undergoing review and revision and will be communicated across the Company in 2002. The system will be made available electronically and ultimately will be linked with supporting policies, standards and procedures across the organization. Considerable effort will be required to integrate and harmonize this system with the many policies, standards and procedures that exist throughout Nexens worldwide organization. Audits and reviews against these revised standards will commence in late 2002.

Organization and Responsibilities


Nexen has defined and implemented an organizational structure that effectively identifies and supports SESR issues and initiatives. All levels of leadership are engaged in visible support and guidance of SESR principles. Support for these principles flows down from the Board of Directors to senior executives to field personnel and contractors. The Board of Directors SESR Committee and Senior Executive SESR Committee meet regularly to review SESR performance and critical issues. These Committees provide a mechanism to ensure that Nexen integrates acceptable SESR systems and practices into its operations and to ensure that SESR and operations departments are accountable. The SESR organization has been structured to facilitate effective leadership, commitment and accountability amongst corporate and operations divisions. SESR support personnel are assigned to operating facilities, divisional management and corporate headquarters. The Corporate SESR Department provides professional support to divisional programs, addresses policy issues and trends that affect the Company as a whole, and is responsible for corporate due diligence and reporting. The majority of the Companys SESR personnel are assigned to operating facilities and report through facilities and/or business unit management. The responsibility for management of environmental reclamation/remediation liabilities and for management of public consultation programs is centralized in Corporate SESR. Twice per year, the Corporate SESR Department sponsors an SESR Network meeting which provides a forum for corporate and division SESR representatives to meet and exchange important information about SESR policies, procedures, standards, issues and trends. Divisional SESR departments also regularly hold network meetings to ensure the effective co-ordination of current and emerging issues and concerns within the individual Divisions and Business Units.

Formal Reporting
Nexen has established a formal reporting system that allows various levels of management to monitor and respond to changes in SESR performance, including: monthly activity reports which summarize activities that impact SESR at operational facilities;

quarterly injury and environment incident statistical summaries which provide a comparative measurement of SESR performance against historical performance and industry standards; an annual report which provides a summary of the previous years performance; identification of important issues; and, projections for the current year. The annual report is subject to review and audit each year by the Internal Audit Department before it is presented to the Board of Directors and distributed to internal and external stakeholders; incident reports, entered on a computerized database which provides personnel the capability to be informed about, review and comment on incidents as soon as they are reported. The system also provides an approval mechanism to demonstrate due diligence with respect to following-up incidents.

Audits, Assessments and Inspections


Nexen regularly performs SESR audits, assessments and inspections of its operations to ensure that the Companys operational personnel operate its facilities to comply with applicable legislation, regulations, standards, policies, procedures and other SESR management systems. Audits involve intensive reviews of operations/facility SESR management systems to verify compliance with applicable laws and company policies. A formal protocol is normally followed and a written report containing recommendations is prepared. An assessment is a less formal review of procedures and practices directed at operational enhancements and at monitoring progress toward completion of audit recommendations. Inspections are undertaken regularly by facility personnel to detect and remedy conditions and operating practices that may expose the Company to unacceptable levels of risk. Facility and often divisional management personnel regularly participate in SESR inspections. Independent third party audits are performed regularly to maintain a high level of objectivity and accountability. Internal SESR performance and security audits are completed at our field facilities and within head office functional groups every two to four years. Accredited independent auditors ensure objectivity and accountability through third party / external audits every three to five years. Required improvements identified are reported to operations and/or functional group management, as well as senior management. Plans are developed to address audit recommendations and audit results are reported regularly to the Board of Directors. Preparing for verification is a continually evolving process. Nexen is in the early stages of exploring ways in which it can enhance its reporting of social accounts. Success in all areas requires ongoing education and effort by all of Nexens employees. In addition to striving for continuous improvement, Nexen networks with a variety of global initiatives in order to expand its knowledge and understanding of implementing and verifying CSR.

Global Initiatives
In its quest to prepare for verification, Nexen actively engages in global initiatives which assist in determining how it implements the principles of CSR. These initiatives assist in measuring different aspects of Nexens business. Each process is a step which provides information on progress made and identifies gaps to more comprehensive reporting and verification.

International Code of Ethics for Canadian Business


The idea for a code first surfaced at a 1996 meeting sponsored by Canadas Minister of Foreign Affairs, Lloyd Axworthy, in which about 50 Canadian companies operating in Nigeria met to discuss human rights conduct in that country. Nexen agreed to champion the process. A core group of 12 businesses was formed and guidance was provided by Professor Errol Mendes, who was the Director of the Human Rights Research and Education Centre at the University of Ottawa at the time. The group soon realized that an ethics code could apply to business operations anywhere. In 1997, the coalition of Canadian companies, along with Mr. Axworthy, announced the release of the International Code of Ethics for Canadian Business. The purpose of the Code is to provide an appropriate standard of conduct for Canadian companies operating in a wide variety of systems and cultures throughout the world. While the Code is in the nature of general principles, it is meant to be a catalyst as it creates a basis for ongoing implementation and evaluation initiatives related to ethics in international business.

The United Nations Global Compact


Nexen has endorsed the Global Compact, an initiative of the United Nations Secretary General Kofi Annan. The Global Compact calls for a closer and mutually supportive partnership between the UN and the global private sector and puts a more human face on globalization. It fosters good practices based on nine universal principles which are very similar to the International Code of Ethics for Canadian Business and which cover human rights, labour and the environment. The Global Compact provides an excellent opportunity to level the playing field within the business sector with respect to CSR performance by engaging in dialogue and sharing experiences and best practices.1 As part of its commitment, Nexen submitted a case study on its above ground operating strategy for managing risk in international operations. Nexen will enter into a UN partnership project that will address basic needs such as clean water, health and education, likely in Yemen.

International Petroleum Industry Environmental Conservation Association


IPIECA is comprised of companies and trade associations with operations in the production, transportation or refining of petroleum. It holds United Nations status, allowing it access as a nongovernmental organization to UN treaty processes. Its aim is to help its members respond to longterm global environmental challenges.2 Nexens Vice President, Safety, Environment and Social Responsibility is the Chair of IPIECA.

External Sources
Nexen participates in a number of initiatives which assess and measure different aspects of its business. In 2001, Nexen was included as a component of the Dow Jones Sustainability World Index (DJSWI), a benchmark for companies committed to sustainable business practices. Through a process verified by PriceWaterhouseCoopers, the DJSWI evaluates how a company embraces opportunities and manages risks deriving from economic, environmental and social developments. The DJSWI outperformed the Dow Jones Global Index by approximately 44% based on seven years of total returns.3 In addition, Nexen was awarded Gold Champion Level status in recognition of its efforts and results in minimizing greenhouse gas emissions. Engaging in global networking initiatives coupled with the evolution of Nexens reporting process allows it to pay close attention to balancing economic, environmental and social responsibility aspects. Nexen recognizes the importance of exploring and discovering new ways to govern itself in a world that is constantly changing. One example is how Nexen has taken a successful initiative from the chemicals industry and implemented it in its oil and gas operations.

Responsible Care is a comprehensive health, safety, environment and community issues management system. It was established in 1985 by the Canadian Chemical Producers Association (CCPA) to address public concerns about the manufacture, distribution and use of chemicals following the chemical spill in Bhopal, India in December, 1984.4 Responsible Care is basically a blueprint for developing formal policies to manage business activities safely and responsibly and for developing ways to communicate effectively with the public. The chemical industry has aggressively implemented Responsible Care practices, covering six key areas: community awareness and emergency response, manufacturing, transportation, distribution, hazardous waste management, and research and development. Within these areas there are 151 standards that must be met to be verified as a Responsible Care site. Since 1991, Nexen Chemicals has been considered a leader in implementation. For example, safety incidents declined from 29 in 1990 to four in 2000. Environmental incidents were down over 90% from 102 in 1990 to four in 2001. The issues addressed by Responsible Care are not unlike what the oil and gas industry faces. Nexens Balzac, Alberta gas processing facility took a leadership role in adopting the Responsible Care ethic. The Balzac gas plant, located north of Calgary, has been breaking new ground since it first opened in 1962. Innovative partnerships and the introduction of new technology and new production techniques have made it a leader in the gas business. Now, its become the first oil and gas facility in the world to implement Responsible Care an initiative originally seen only in chemical companies.

Responsible Care

The process began in late 2000 and substantial progress was made during 2001. Nexen has been integrating Responsible Care into all functions including: employee awareness and commitment, strategic planning processes, resource allocation, reporting and follow up of suggestions and problems, and performance tracking and recognition. Balzac is a big facility and, in a way, its not that different from a chemical plant. It was a logical place to start Responsible Care within Nexens oil and gas division. Once the process was started, it became apparent that Responsible Care was not just a Balzac specific initiative. The Responsible Care ethic and practices are being implemented in all phases of the plants business - from first contact with the community by the land department right through to the customer who purchases the end product. Its a cradle-to-grave initiative that covers every part of its business. Once the process was started, input and support were needed from the rest of the company. For example, Nexens Marketing division had to get involved with assessing transportation routes and carriers to make sure they complied with key Responsible Care elements. Corporate Security developed a security manual. Environmental Standards were developed and procedures created that complied with the new standards. Even training procedures and management systems were affected resulting in increased formalization. One of the key elements in Responsible Care is communication with the community. As set out above, Nexen has worked hard for a number of years to foster good communication with the public. That communication is now occurring more regularly and proactively. Another aspect of Responsible Care is ensuring that customers, product carriers, suppliers, working interest partners, contractors and waste handlers understand the ethic of Responsible Care. For the most part, these stakeholders were very open to working with this change. A four-person team including Canadian Chemical Producers Association (CCPA) and community members will form the verification team that will perform a rigorous Responsible Care "In-Place" verification at Balzac planned for the spring of 2002. Once Nexen has been verified as Responsible Care In-Place, it will have a rigorous standard that will serve as a benchmark. Continual self audits and a formal CCPA re-verification process will take place every three years to ensure standards are met and continually improved. When this audit is successfully completed, it is anticipated that Balzac will become the first upstream oil and gas operation in the world to attain that milestone. The report which the verification team produces will be made publicly available. Planning for further implementation of Responsible Care across other Nexen Canada operations has commenced and is expected to be put into action in 2003. Plans are also in place to implement Responsible Care in Nexens Yemen Masila operations, commencing in mid-2002. When this initiative is successfully achieved, likely by mid to late 2003, this operation will become the first international oil and gas operation to become a Responsible Care partner. Nexen sees Responsible Care as a very worthwhile initiative. It fits with Nexens Integrity Program, formalizes its public consultation process and strengthens its management systems. Second-party audits by regulators will show that Nexen has gone well beyond compliance. Adopting Responsible Care also sets a leadership example for other oil and gas companies.

Conclusion
Globally, Nexens existing management system is evolving as it moves forward in the verification process. Working with the broader global community that is committed to CSR, Nexen will continue to seek innovative ways in which it can improve performance while enhancing its capacity to measure, report and verify its activities. Nexens ultimate goal is to demonstrate to stakeholders that it does what it says it will do and that its actions stand the test of external scrutiny.

Acknowledgements

7 The writers thank Dr. Randall Gossen, Nexens Vice President, Safety, Environment and Social Responsibility and Professor Errol Mendes professor of law and Adviser, Office of the United Nations Secretary General on the Global Compact for sustained leadership and valuable input in the development of Nexens Integrity Program; Garry Mann and James Shaw for their input into the content and Brenda Drew for sharing her excellent article on the implementation of Responsible Care at Nexens Balzac plant.

References
1. What It is, United Nations Global Compact: [Online]: http://www.unglobalcompact.org/un/gc/unweb.nsf/content/whatitis.htm, (Available: March 26, 2002). 2. What is IPIECA, International Petroleum Industry Environmental Conservation Association: [Online]: http://www.ipieca.org/intro/whatisipieca.html, (Available: March 26, 2002). 3. Conference Board of Canada: Feltmate, B.W., Schofield, B.A., Yachnin, R.W., Sustainable Development, Value Creation and the Capital Markets, 2001 4. Who We Are, Canadian Chemical Producers Association: [Online]: http://www.ccpa.ca/english/who/index.html, (Available: March 26, 2002).

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