The Oil Industry in South America Part 2 In order to avoid the costs and delays of drilling in Latin America,

one must analyze their situation by mapping out the most important regulatory divisions in a particular location instead of concentrating just on key functions. This could be the difference between a successful project and a failure, given South Americas history. Most governments tend to favor oil and gas production, but they individual leaders sometimes view projects as a means of gaining an advantage. In Peru and Colombia, these leaders often try to monopolize relations between the companies and the communities. Several projects have been denied because of agricultural interest: the fear that oil and gas development will push up labor costs, have leveraged links with local regulatory bodies or individual senators. This is usually done on environmental grounds. This is more prevalent in countries like Peru and Colombia because they lack a tradition of oil projects. However, this is likely to occur in Argentina also once the industry starts to move toward agricultural areas. In countries that are environmentally sensitive, indigenous and environmental groups hold significant power. These groups tend not to negotiate on their main concerns, which are land rights, ancestral lands, and environmental degradation. Many countries have trade unions. Colombia, Venezuela, and Brazil actually have a single, united trade union that likes to be seen as representing the workers. However, with the exception of Venezuela, these unions moderate more disruptive forms of activism in fear that undermining a specific project with ultimately lead to less jobs being created. In Venezuela, these unions try to completely undermine the companies, hoping that it will force the government to intervene and nationalize the operation. Unions in South America center most of their actions on their personal leadership and furthering their own careers. Companies that wish to go into the oil field in South America can actually find ways to effectively engage with the unions. Companies must also deal with NOCs, National Oil Companies, which are the most powerful interest groups in South America. They must be dealt with as partners, contractors, competitors, regulators, or even a combination of one or more of these. NOCs have home advantage. They live in the countries where they are working and therefore can understand the dynamics better. They also are politically better connected than outsiders, having access to privileged information that they know how to leverage. They are often chosen over competitors from outside countries because of this. Therefore, it is easier for them to get to more soughtafter land. The only real protection that outside companies possess is the strength and independence of regulatory bodies and the transparency of the legal system. However, NOC contractors still have a lot of transparency issues. Companies like Petrobras, Ecopetrol, and PetroPeru still have processes that are relatively opaque. Health, Safety, and Environmental Standards (HSE) and the coverage offered to subcontractors often dont match legal and industry best practices. Companies regulated by NOC may find themselves exposed to corruption. In cases where the NOC is both a regulator and a competitor, serious conflicts of interest arise, with the company almost always choosing to do what will further their own company. NOCs can become partners with certain out-of-country companies. This can be done either by choice or by force, with the NOC deciding that a partnership must occur. Internal issues often can occur, however, if a company realizes that their policies are not the same as the

NOC. If partnering with the NOC, political needsoften short-term oneswill always trump business of operational conditions. Corruption in South America is also a very big issue when it comes to the oil field. Brazil is the only country that is not in the bottom half of Transparency Internationals 2012 Corruption Perception Index. Corruption has actually increased with newfound economic growth. This is because more populist leaders have weakened institutional barriers to corruption. Few companies in South America actually provide clear rules or guidance to help outside companies succeed in Latin America. Foreign companies will be almost entirely dependent on advice and guidance of intermediaries to help them navigate public affairs. Corruption, however, could potentially be avoided. In order to succeed, international oil and gas companies must create relationships on the local level with public and private decision makers. Location-specific risks also pose a threat to oil and gas projects in South America. They are often considered risks to be dealt with once the project is on the ground. In order to overcome these obstacles, companies must recognize that the goodwill and political agenda of the national government often does not apply at the local level. National government may not be willing to intervene at this level. Plenty of regulatory challenges remain, especially when it comes to licensing. In many areas, the idea of oil and gas production is new and exciting. Because of this, many countries are actually eager to have businesses take up in their country. However, this can be taken over by many different groups, political groups or even organized crime gangs. In some cases, local NGOs try to seek funding from international environmental groups by over exaggerating the damage that these oil companies have caused and presenting this version of reality. These risks almost never occur by themselves. They are likely to come down to many different processes and be fought on many different fronts. These risks can all be avoided by the use of careful investigation on the businesss part. The oil field in South America must be approached strategically in order to avoid the turmoil that can result. Resources South America Oil and Gas: Risk and Reward in the Land of Opportunity. London: Control Risks, 2013. Print.