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Drilling Papua
New Guinea
Chevron Comes
to Lake Kutubu

by Danny Kennedy

PORT MORESBY -- Papua New Guinea (PNG) has long been considered rich in potential reserves. Only decades after "first contact," seeps and other indications of oil were discovered in various places around the country. In the 1920s, the Anglo-Persian company (now British Petroleum, BP) commenced exploration because company scientists believed the surface geology looked similar to that of Persia. Despite several earlier gushers at wildcat wells, however, the 60-year quest for oil found its holy grail only when commercially viable bodies of oil were struck in 1986.

The Iagifu oil discovery in the Southern Highlands was led by Chevron, with BP, PNG's own Oilsearch, Australia's Ampolex, Australian BHP Petroleum, Pioneer and Japan-based Merlin International on board the exploration team. Located near the pristine Lake Kutubu, at 2,000 meters above sea level, the prospect of crude was sufficient to justify a US$1 billion expenditure by the oil companies to build Melanesia's first oilfield and export system. Operated by Chevron, the Kutubu Petroleum Project is now jointly owned by Chevron subsidiary Chevron Niugini, BP, Ampolex PNG, Merlin-Pacific, BHP Petroleum, Oilsearch and the government-owned Petroleum Resources Kutubu, which holds a 22.5 percent stake. There are more than 40 wellheads west and south of the lake, a base camp of 450 personnel and two other camps of 50 each along the length of a 265-kilometer export pipeline which pumps up to 100,000 barrels of oil a day into supertankers in the Gulf of Papua.

A Chevron manager at the site says, "It's amazing what you can do with a billion dollars." But what few Chevron staffers seem to realize is that Lake Kutubu was amazing before the company got there. It is home to the Foe and Fasu language groups, who until the late 1980s had had only limited contact with missionaries, Australian colonial administrators and the post-independence government. It also has incredible flora and fauna. Russell Mittermeier, president of Conservation International, says the area "is a unique place because it is relatively intact and tremendously diverse. It has incalculable environmental value." Now the social and biological riches of Lake Kutubu are imperiled by the oil project.

Development comes to Lake Kutubu

Prior to the Kutubu Project, many engineers had said connecting the southern coastline of PNG to the Southern Highlands would be well-nigh impossible, and certainly impractical, so rugged is the region. Once oil was identified in 1986, however, Chevron built a road, laid pipeline and installed some of the largest industrial infrastructure in the country by the lake, using 4,000 Hercules airplane flights in the space of one year's construction. One of the best hospitals in the country is maintained at the base camp for employees; another new road connects the lake to the highlands highway; and what is probably the first golf course in the Southern Highlands has been bulldozed into the Lake's shores.

The 225-million-barrel-oil reserves identified at Kutubu are sufficient to feed the fossil fuel diet of the Western world to which it is exported for just three days. The prospect for this pioneering oil development, which not only opens up a new field but a whole new oil exporting country, was made attractive by the support from national and provincial politicians, bureaucrats and the recently formed PNG Chamber of Mines and Petroleum.

Because of the low price of oil per barrel, though, developing the field has not paid off as well as the executives of the joint venture had hoped. During the establishment phase of the project, industry analysts projected prices of up to $21 per barrel. But oil prices have been depressed for most of the project's life, and were at $18 during the project's peak output period.

Many local people eagerly supported the project at first because they were convinced not simply that the oil would be developed, but that "development" would happen to them. Distributing money from the project, mostly compensation and royalty payments, has been contentious since the start of the project, however. As early as May 1992, a blockade on the last link in the construction of the pipeline by women and children was broken up by a riot squad flown into the area on company choppers. This and several other protests at the time centered around compensation payments, viewed as inadequate by locals, for damages to traditional homes. Sasoro Hewago, a "bigman" of the local Fasu clan, told the Wall Street Journal in June 1992 that "The people say problems have come here because Chevron has come here, and so it is Chevron that must take care of them. ... If we're not satisfied there will be no oil. We have pledged to die. ..."

Sasoro Hewago, who is also chair of a landowner company set up by Chevron and keen to work with the company, has long expressed concern over the project's impact on his people. Eighteen months after his front-page splash in the Wall Street Journal and a little worn down by the experience of trying to peacefully lead his people through the morass of change brought by the development, Sasoro said, "You must chew before you swallow. My people have been exposed to Western civilization for five years, and are expected to deal with it. We are like we are in a dream and when, one day, we wake up it will be gone. We're choking."

Going down the tube

The 5,000 supposed local beneficiaries of the project, members of the Fasu, Foe and Kikori clans, live in the areas near the oilfields by Lake Kutubu and along the pipeline through the previously unroaded rainforest of the Hegigio and Kikori River watersheds to the coast. They have become increasingly unhappy since the first export in late 1992. In December 1993, for example, 60 Foe men were arrested for protesting over royalty payments, and were carried away to the provincial capital's jail in Chevron helicopters. At the same time, down in the Kikori delta, landowners of the Petroleum Pipeline Lease area threatened on provincial radio to close down the project by force unless they received their due.

Problems have escalated since those early confrontations. During the Christmas period of 1995, the worst tension yet developed. Landowners threatened to blow up the pipeline, and the company removed non-essential staff and considered closing down the camp, according to media reports. But the environmental and safety supervisor with Chevron Niugini, Woody Handy, told Multinational Monitor that there were no risks for the project. "That dispute had no safety aspects. ... We never did shut down the project, stop pumping oil or loading tankers, because there were no real threats." On the substance of the dispute, he parroted the company's published position that Chevron Niugini would "not comment, as the issue is a matter between the landowners and government." Throughout this turbulent time, the minister for mines and petroleum refused to speak to disgruntled landowners about royalty and equity shares.

Meanwhile, local people throughout the project and pipeline area tell a similar story of how they are experiencing cultural upheaval and losing control over their lives. Sasoro claims that many of his relatives can no longer even provide for themselves from their gardens because they have become so complacent about company handouts. Government workers, Chevron community relations staff and villagers say that dependency has become rife throughout the project area.

With few permanent improvements to show for the project except a depleted resource base and increased reliance on outside forces, villagers along the pipeline express fear over the project's impending closure, due in just over a decade. They originally expected employment, but Chevron dashed those hopes by giving jobs to only 400 locals. And in the fracas of January 1996, Chevron Niugini fired many local workers. Local news reports speculated the firings were due to Chevron's fear of sabotage of wellheads and pump stations if landowner demands were not met, but Chevron Niugini's Handy staunchly denies the claim.

The big picture

Kutubu is the supposed vanguard of PNG's macro-economic "resource-led boom." Proponents of the project point out that PNG's equity, plus tax, duties and special support grant earnings from Kutubu will bring home billions of dollars. Indeed, in the early 1990s, PNG's gross national product grew at rates of 9 percent or higher, largely because of crude oil and mineral export income.

But the mining and petroleum sector is based on the degradation of natural capital and produces few human-made assets for PNG. It employs less than 2 percent of the population and does not add value to the raw materials. And in those boom years, the national government ran up an enormous foreign debt, causing it to bow to the strictures of a major structural adjustment program administered by the World Bank and International Monetary Fund, in conjunction with its old colonial master Australia, in order to avert a cash-flow crisis.

At the local level, the Kutubu Petroleum "development" has certainly brought change. From an environmental point of view, "oil extraction is having a devastating effect on the region," according to Stephen Feld at the University of Texas, an expert on birds in the local rainforests. The effect is apparent on the shores of Lake Kutubu, where one can hear more helicopters than birds. Locals confirm that much of the area game has been scared away by air traffic.

Whether or not the social change is good is for the people experiencing it to decide. To demonstrate that the change has been beneficial, Chevron's public affairs manager Peter Hagen points to the successful Chevron-sponsored public health program in the area. With locals receiving treatments which in many cases had not been administered in the area since PNG gained independence in 1975, malaria cases dropped 20 percent, and incidence of diarrhea fell 16 percent, in the one-year period from 1994 to 1995.

Public health improvements notwithstanding, the protests and many other signs suggest Chevron is not popular at the village level. The cash that has come into the area seems significant, especially to people who were 85 percent subsistence agriculturalists before construction began, and has created substantial social problems. The principal of the school at Waro, a lakeside village, lamented, "Money can't teach the children for the future." Not only has it brought jealousy and the attendant problems witnessed elsewhere in PNG; but it has challenged the local social "wantok" system -- which traditionally encourages Papua New Guineans to share with and care for their extended family. The inflation of local prices, compensation claims and brideprice has led to bickering between clans and ethnic groups over payouts.

Tensions now run high between the clans of the Lake Kutubu area. The government artificially divided local people, as Fasu and Foe, although they have long considered themselves the same "Kutubuans." The National Cabinet allocates 90 percent of royalties to the Fasu and 10 percent to the Foe, on the basis of their geographical ownership of the project area. The president of the Lake Kutubu Local Government Council says, "Unless Chevron, the government, Foe and Fasu sit down around a table and work out a fair deal, once Chevron and all their security forces are gone, there will be problems with Foe and Fasu."

Tumbi Taguju came to Lake Kutubu as a police officer with one of the first government patrols to the area. Although from the Huli tribe, he married into the area and has become a bigman. Given his relatively cosmopolitan experience, he favors opening the Lake up to the outside world. But even he says that the people of the area would have been better off without the oil.

Claiming that the problems stem from poor government relations with the local people, Chevron refuses to respond directly to the issue of equity participation by landowners in the project. Some sources close to Chevron do suggest the company is prepared to work with the state to change their agreements in order to allow landowners to have a stake in the joint venture.

Greening the crude

The poor environmental reputation of the oil industry and the environmental significance of the area caused Chevron to take precautions. Will Frazier, former project director for environment, health and safety said in 1992, "We've tried to make this a model effort for development that is environmentally sound and socially responsible." The Kutubu development has indeed been billed a "green oil project" in several industry magazines by virtue of a pipeline that does not leak and the employment of professional environmentalists from the United States to work with the oil joint venture. The World Wildlife Fund-USA is party to a $3 million contract with Chevron to implement an "Integrated Conservation and Development Project" for the oil project area.

While the environmental merits of the WWF plan are open to debate, it is indisputable that Chevron values its ties with WWF for the credibility they lend to an environmentally questionable operation. A leaked 1993 confidential evaluation of the potential impacts of a Kutubu oil spill and the clean-up capacity of the joint venture, written after a practice exercise conducted by the joint-venture partners, expressed concern "as to whether a policy exists to control media and interest groups (Greenpeace) at Kopi area should a spill of this magnitude occur." Other documents concluded that the joint venture partners could rest easy, however, because "WWF will act as a buffer for the joint venture against environmentally damaging activities in the region, and against international environmental criticism."

Don Henry of WWF says his organization entered into the partnership with Chevron "with a lot of thought and care." WWF was "sensitive that it did not want [the project with Chevron] be a greenwash," he says. "We wanted a genuine collaboration with a responsible member of the private sector." Chevron can only publicize the conservation project with WWF's agreement, he adds.

The good environmental news is that state-of-the-art technology in the pipe and sophisticated oil spill response capacity have allowed Chevron to comply with PNG's zero leak legal mandate for an oil project.

Less fortunately, the success so far has led Chevron to vastly underestimate the threat of an accidental spill. Before Chevron started piping oil, a tanker associated with the construction phase of Kutubu ran aground on the pipe on the Kikori River bed. Environmental management academics Michael Kondolf and Richard Chaney from Humboldt University in California did an independent evaluation of the risks and concluded: "We are particularly concerned about potential impacts of catastrophic oil spills from pipeline breakage. Given the proximity to active faulting and subduction, and given the nature of deltaic sediments, pipeline failure at multiple points can be expected due to seismic shaking and liquefaction."

These dangers were graphically demonstrated in May 1993, when several sections of the riverbed underlying 110 kilometers of pipeline shifted and threatened to rupture. When divers checked the pipeline's condition, they found more than one kilometer of pipe unsupported. Workers involved said that such a freespan could easily have flexed in the strong tidal currents of this stretch of the Kikori River until the pipe broke. The loss of any crude would likely be an ecological disaster, because Chevron would at best be able to clean up 25 percent of any spill, according to the company's own oil-spill evaluation. Nonetheless, in this area of magnificent estuarine wilderness, Chevron's environmental management plan claims that in the event of a worst-case spill: "There would probably be no damage to mangroves in the delta."

Failing to defend the frontier

Although the project infrastructure occupies a relatively small area, the "frontier effect" of opening up both the Lake Kutubu and Kikori River areas to in-migrants, industrial agriculture and forestry may lead to the destruction of much of this wilderness. One of the reasons for engaging the World Wildlife Fund was to counteract this tendency and to find alternatives for local industry to the timber mining that plagues PNG. But according to Joseph Ka'au of Greenpeace Pacific, the WWF-run "program has failed in spite of WWF's commitment to stem the tide of industrial logging in the area."

The pipeline access track, which green groups opposed being improved, may well be turned into a road in 1996 despite assurances by Chevron to the contrary, thereby providing easier entry for the timber companies. Worse still, several logging concessions have been allocated by the national government that cut through the Chevron-WWF conservation zone in the heart of the Gulf of Papua -- one of the largest areas of intact tropical rainforest left on the globe.

The logging interests with claim to more than 1.5 million hectares include Rimbunan Hijau, the Sarawak, Malaysia-based company which dominates PNG's forest industry, another Malaysian timber giant, Turama Forest Industries, and Hong Kong-based Yeung's Group Enterprises.

Rimbunan Hijau has been logging east of the Kikori River -- through which the Kutubu pipeline runs -- for three years, although the government suspended its operations there pending renegotiation of the company's permit. Paul Chatterton of WWF's South Pacific Program reports that activities have continued on the ground in flagrant disregard of the suspension, however, and Rimbunan Hijau project staff have been negotiating with Kikori Landowners in the Kutubu Project area.

Other areas, supposed to be protected by the alliance of Chevron and WWF, are also under threat from the logging proposals. Even rugged Mt. Bosavi volcano and its watershed, which WWF found in its research to be "on par with the most biodiverse forests in the Asia Pacific region," may be logged from helicopters pending government approval.

With this emerging tidal wave of logging projects, PNG's public interest community has become increasingly skeptical of the value of this green-corporate collaboration. Brian Brunton, from the Individual and Collective Rights Advocacy Forum in Port Moresby, says that if WWF is serious about protecting the wilderness, "they have to use their influence to force Chevron to make a stand against the logging companies moving into the Gulf. If this does not happen -- and Chevron does not pull its weight with the government -- the whole integrated conservation and development strategy has been nothing but a greenwash."

Asked whether Chevron would use its muscle to influence PNG government policy or the logging companies, Chevron's Peter Hagen says he is "unable to comment."

WWF's Don Henry says he is skeptical of claims that Chevron has the power to affect government policy on logging. "The views of any one foreign party are not necessarily going to sway the government" on logging policy, he says, noting the pressure exerted by the Asian logging companies on government officials and local landowners through bribes, threats and patronage.

The success of efforts to save the PNG rainforests, Henry argues, will hinge on a combination of broad-based expressions of international concern, local landowners' expression of a desire to pursue an alternative, sustainable development path and international provision of resources to make those alternatives viable. The WWF project is helping satisfy those important components, he says. "I wouldn't say that [the WWF project] is holding the line perfectly, but it is one of the few areas where landowners who do want to hold the line are getting assistance," he says. With WWF assistance, he claims, communities have established local forest reserves, eco-tourism projects and small-scall logging enterprises. These efforts "have probably helped hold back large-scale destructive logging," he says.

The Future of Oil and Gas in PNG

Kutubu is a wedge for the development of the oil and gas industry in Papua New Guinea. Despite marginal returns from Kutubu, Exxon, BP and Mobil, as well as Chevron, are lining up to expand oil operations in PNG, and lobbying in Port Moresby, PNG's capital, to ensure the government agrees.

To energize exploratory efforts, the World Bank loaned the PNG government $11 million to double the capacity of the exploration division of the Department of Mines and Petroleum in 1994 and 1995. Asked by the Australian AID/WATCH about the wisdom of the loan given the Bank's rhetoric of supporting renewables and alternative energy projects, Marianne Haugh, PNG country division head for the World Bank, said, "When the oil industry first entered PNG in the early 1990s, there was insufficient geological data to ensure the equitable distribution of information on oil reserves to allow a diverse industry to develop. We sought to remedy that."

While the government and World Bank are providing a generous boost to the upstream development of the oil industry, downstream oil processing has proceeded apace. The government has given the go-ahead to a 100,000-barrel-a-day refinery in Port Moresby harbor, despite local opposition, on the assumption that new oilfields will be identified and developed in PNG within the next five years.

In the Southern Highlands, two new projects are indeed online, South East Gobe and Gobe 4x. While only minor deposits of oil, their proximity to the Kutubu export pipeline has made them commercially viable. In both cases, social tensions are already mounting as local people have learned from the Kutubuans' experience that they will have to fight to get anything out of a project on their land.

And back at Lake Kutubu itself, Chevron's failure to deliver on its promises has created tension that may well break out in violence. Sasoro Hewago made a harrowing statement to the press in early January 1996, during the standoff with the joint venture partners over equity shares. "I must warn the government that the slightest build up of security forces may spark off a riot by landowners which we do not want to see happen."

The dispute so far remains unresolved, but it begs the question of whether this was all really worth three days of gas guzzling.

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