The Cost of (Inadequate) Stakeholder Analysis: lessons for offshore energy projects

Earlier this month, the Australian Federal Court handed down a significant judgement that is now seeing a lot of offshore energy companies re-evaluate their approach to stakeholder engagement. The ruling has raised the bar for the level of consultation with local communities that offshore projects need to do, requiring them to go well beyond representative bodies such as Land Councils. 

The case involved the $5.3 billion Barossa gas project in the Timor Sea. The project operator Santos said that they always sought to meet their responsibilities on consultation. Regulatory approval was granted based on the plans they submitted to the National Offshore Petroleum Safety and Environmental Management Authority (NOPESEMA).  

[This image is for illustrative purposes, not an exact representation of the case] An oil production ship in the Timor Sea. Photograph: Chris Sattlberger/Getty Images

So, what went wrong? 

In September 2022, the Federal Court found that the oil and gas producer had failed to consult with all relevant local Indigenous people. The case was brought by Mr. Tipakalippa, a Munupi elder, who challenged the decision by NOPESMA to allow the drilling at the site which is 265 km from Darwin and 140km north of the Tiwi Islands. The project developer had not consulted the Tiwi Islanders, believing that they did not have an “interest” in the area. It had consulted with the Tiwi Land Council and Northern Land Council. But the court found that they were mistaken in how they interpreted the concept of “interest,” which should have included not just legal but also the cultural and spiritual interests held by the Tiwi Islanders. 

Drilling stopped in September after the initial ruling. The cost of this stalled drilling has been estimated to be around US$70 million. Court costs, impact on share price, and cost of creating new plans, and the opportunity costs all start to add up to a very large overall cost. 

This post is not intended to criticize any person or company. Afterall, the standards at which the company was operating had received regulatory approvals. This case is a powerful reminder that community standards and expectations have changed. The Federal Court judgement reflects these changing standards and expectations. 

Implications, and what’s next?

This judgement has significant implications for all offshore energy projects, not just oil and gas projects. As Alina Leikin from the Environmental Defenders Office which represented Mr. Ipalalippa, said, “Companies are now well and truly on notice that they must meaningfully consult with First Nations communities and Traditional Owners. Companies must provide enough information to enable people to understand what is being discussed and to provide feedback, and they must then listen to what people have to say and take that into account and consider what measures they might put in place to address concerns that have been raised.” 

Industry representatives and associations are calling for government to provide regulatory certainty when approvals are granted, as well as clearer regulations on consultation. 

Will we see new regulations in Australia or government intervention to limit the requirements for consultation on these sorts of projects to help fast-track them? Or will we see the emergence of more projects facing legal challenges due to inadequate consultation, like what has happened in the UK over the last few years? 

Whatever happens in this case, whether the government intervenes, or the overall industry and individual companies shore up their engagement efforts, the rules of engagement (literally!) have changed. This result (and the consequences Rio Tinto faced in the Juukan Gorge a few years ago, which was also largely a failure of adequate consultation with Indigenous groups and internal reporting), have demonstrated that the risk and cost of inadequate consultation are much too high. The cost of good stakeholder engagement, are minuscule in comparison. 

Better Stakeholder Analysis

If you’re working in the offshore energy space, one of the best things you can do right now to address this risk is to review your stakeholder analysis. A misstep at this stakeholder analysis step cannot be easily overcome, even if the rest of your engagement process is excellent.

Stakeholder mapping is a key part of stakeholder analysis. We use the “Three I” framework of Influence, Interest, and Impact as one of the main stakeholder mapping models. This is a great model to use and one that complies with most modern frameworks. (Read our resources linked above for more information on the various frameworks in use around the world.)

The “Interest” category is often the least well-understood of the three, and we often have customers ask us if they can just use the other two criteria of Influence and Impact and leave out Interest. This Federal Court ruling places the “Interest” category right at the heart of stakeholder engagement. In this context, we are better placed to interpret “Interest” as those individuals and organizations who have a right to be involved and consulted. Their right to be involved should consider more than just legal rights such as leaseholds or direct involvement, and look at social, cultural and historical connections as well. Rather than interpreting the “Interest” category as being related to stakeholders who find your work or project interesting, we need to look at it as stakeholders who hold a legal, economic or cultural interest in the work you are doing. It is closely aligned with the “Impact” category, in that it tracks who might be impacted by your work or project, but it is not necessarily the same, as this legal case demonstrates. 

What is good stakeholder engagement? 

All good stakeholder engagement should start with a robust stakeholder analysis process. Here at Darzin we put a high emphasis on identifying critical stakeholders, mapping their levels of Interest, Influence, and Impact, and tracking how often and how well you are engaging with them. It is a core part of our approach to Stakeholder Management. 

Do you have visibility on who is most impacted by your project, and the history of engagement with them? How confident are you about the health of the relationships with stakeholders who are critical to your success?  

If you cannot easily answer those questions, you may want to consider getting a good stakeholder management system like Darzin or Simply Stakeholders in place to help you manage those critical relationships and implement effective stakeholder engagement programs. Book a meeting with one of our team members to learn more. 

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