Tranquilo and Otway UJVs

Environmental & Social Review Summary

This Environmental and Social Review Summary is prepared and distributed in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board of Director’s decision. Board dates are estimates only.
Any documentation which is attached to this Environmental and Social Review Summary has been prepared by the project sponsor and authorization has been given for public release. IFC has reviewed this documentation and considers that it is of adequate quality to be released to the public but does not endorse the content.

Project number

28614

Country

Chile

(IDA)

Region

Latin America and the Caribbean

Sector

Oil and Gas Exploration

Department

Gbl Infrastructure & Natural Resources

Company name

Geopark UJV

Environmental category

Status

Active

Date ESRS disclosed	November 25, 2009
Last Updated Date	February 9, 2012
Previous Events	Invested: June 3, 2011 Signed: May 15, 2011 Approved: January 6, 2010

View Summary of Proposed Investment (SPI), click here

Overview

Category & Applicable Standards

Key Issues & Mitigation

Community Engagements

Client's Documentation

Overview of IFC's scope of review

The review of this project consisted of an appraisal mission in September 2009 to GeoPark’s assets in Chile and review of technical, environmental and social information. The project sponsor is an existing IFC client and during 2005, IFC undertook an appraisal visit to GeoPark’s key assets in Argentina and Chile in respect of an earlier investment and a subsequent supervision visit in May 2008. Please refer to the Environmental and Social Review Summary (GeoPark: 24689 ) available on IFC’s website (www.ifc.org/disclosure) for a detailed description of the earlier investment.

IFC held meetings with management and key staff from GeoPark in Chile and the following activities were undertaken during the appraisal:
Discussions with GeoPark on key environmental and social aspects of their assets in Chile; An overview assessment of environmental and social issues, community engagement and development activities to date; Field visits to the Otway and Tranquilo blocks in Chile; andMeetings with the Mayors of Rio Verde, Villa Tehuelches and Puerto Natales.

Project description

GeoPark Holdings Limited (“GeoPark”), a junior E&P company with producing assets in both Argentina and Chile, listed on the AIM market of the London Stock Exchange. GeoPark’s core assets are located on both sides of the Argentine-Chilean border in the Austral basin of the Magallanes and Antarctica Chilena region in southern Chile. The region contains almost all of the limited Chilean oil and gas reserves.
GeoPark has invited IFC to consider an equity investment as unincorporated joint venture (“UJV”) partner for a 15% working interest in the Otway and Tranquilo exploration blocks, located in the Austral basin, in close proximity to GeoPark’s Fell Block. The Project will be carried out through UJVs governed by Joint Operating Agreements among the UJV partners and IFC. Current participation in the two exploration blocks, Tranquilo and Otway, is as follows: Tranquilo Block: GeoPark Magallanes (30%), Pluspetrol Corporation of Argentina (30%), IPR Energy of USA (20%), and Manas Petroleum of Switzerland (20%); Otway Block: GeoPark Chile (33.6%), Wintershall of Germany (33.6%), Pluspetrol (20%), and Methanex Corporation of Canada (12.8%).
GeoPark Magallanes Limitada, GeoPark’s wholly owned subsidiary is the operator of both blocks.

Historically, the Blocks have tested and produced gas; however, currently there is no oil or gas production (except for a small gas field, Tranquilo, located in the northern part of the Tranquilo Block and operated by the state-owned company, ENAP). No reserves have been independently appraised in the Blocks. Phase I of the Project (three years) entails further appraisal of the Blocks which will include 2D/ 3D seismic programs and eight exploration wells. Phase II (two years) may involve further development and additional exploration within the Blocks.

Identified applicable performance standards

While all Performance Standards are applicable to this investment, IFC’s environmental and social due diligence indicates that the investment will have impacts which must be managed in a manner consistent with the following Performance Standards:

PS 1: Social and Environmental Assessment and Management Systems
PS 2: Labor and Working Conditions
PS 3: Pollution Prevention and Abatement
PS 4: Community Health, Safety and Security
PS 5: Land Acquisition and Involuntary Resettlement
PS 6: Biodiversity Conservation and Sustainable Natural Resource Management
PS 8: Cultural Heritage

The project appraisal also assessed the applicability of PS7 on Indigenous People and has concluded that there are no known indigenous communities within the project’s footprint.

Environmental and social categorization and rationale

This project is a Category B according to IFC’s Policy for Environmental and Social Review of Projects. The current project involves the seismic phases for the Otway and Tranquilo blocks, thus the impacts will be short term and localized to the areas where the seismic lines would cross the fields. The key social, environmental, health and safety issues associated with this project include the following:

Temporary disruption to the sheep rearing activities in the ranches known as “estancias”;
Management of contractors for the different seismic activities;
Opening of the seismic lines and clearing of vegetation;
Emergency procedures and employee training;
Community safety from increased road traffic and potential for vehicular accidents;
Potential migration as and when the project progresses to development stage;
Environmental liabilities from previous operators; and
Potential impacts to livestock from existing open pits associated with exploration activities undertaken by the previous operators of the blocks.

All of the above issues have limited adverse social or environmental impacts that are site specific and readily addressed through mitigation measures described in the attached Environmental and Social Action Plan. GeoPark has an integrated Environmental, Health and Safety and Social Management Plan and has already established procedures and processes for the Fell block in Chile. GeoPark is currently in the process of developing specific procedures for the Otway and Tranquilo blocks.

For the seismic activities, the project will result in temporary economic displacement. However, if the exploration blocks prove to be viable and the project reaches commercial development, land may be required permanently for development of project facilities. In such case, GeoPark will develop a Land Acquisition and Compensation Framework for permanent land acquisition.

Key environmental and social issues and mitigation

GeoPark, a small upstream oil and gas company, has developed a customized Environmental, Health, Safety and Social Management System for implementation in all its operations. GeoPark’s activities are governed by a set of ‘Commitments’ - safe and motivating workplace for employees, protection of the environment and engaging with local communities to be the preferred neighbor.

IFC undertook a due diligence to assess any gaps between GeoPark’s social and environmental practices and IFC’s Performance Standards. The Company has committed to comply with Chilean national requirements for management of environmental and social issues and with IFC’s Performance Standards on Social and Environmental Sustainability. To this end, the Sponsor has developed an Action Plan to address the risks and impacts to ensure that its operations comply with the environmental and social requirements of (i) the host country laws and regulations, and (ii) IFC’s Performance Standards on Social and Environmental Sustainability. The sections below summarize GeoPark’s environmental and social practices and provide a description on how potential impacts will be addressed. The attached Environmental and Social Action Plan (ESAP) summarizes all the mitigation measures that the Sponsor will undertake. The Action Plan will be updated to reflect future expansions of its operations and additional measures to reduce the project’s social and environmental impacts that may be identified in the future.

Social and Environmental Assessment and Management Systems

Management Systems

GeoPark has developed a customized integrated management system called SPEED. Through SPEED, GeoPark intends to provide a comprehensive framework that addresses the following key elements- Safety, Prosperity, Employees, Environment and Community. The management program has established objectives, benchmark and monitoring processes for each of the elements. SPEED includes a tracking system for recording accidents in a database accessible to all staff through GeoPark’s intranet.

SPEED is designed to facilitate management of environmental and social issues at the operations level with responsibility and accountability given to field managers and staff. The main elements of SPEED draw on international standards namely ISO 14001, OSHA 18001, SA 8000, IFC Performance Standards and the Quoted Companies Alliance Standards (for corporate governance). GeoPark continues to develop environmental and social procedures as part of the integrated management system.

GeoPark will undertake a gap analysis to determine aspects of the management system that need to be updated to reflect IFC’s Performance Standards.

The majority of GeoPark’s activities will be undertaken by contractors that will be carrying out the seismic operations. Thus the management of contractors by GeoPark will be the key issue for the project to consider such that they comply with all of the established standards. During the bidding process, GeoPark includes procedures and minimum standards that the contractors have to follow and verifies that the contractor has an EHSS management system in place. According to Chilean regulations, GeoPark is the entity responsible for the contractor’s activities. As such, GeoPark provides training to its contractors on its policies and procedures on aspects related to security and safety, environmental protection, defensive driving, waste management, first aid and emergency preparedness. In addition, GeoPark requires the contractor’s management plans for each of their activities to be aligned with GeoPark’s management system.

Organizational Capacity

GeoPark has experienced Environmental, Health, Safety and Social (EHSS) staff based in Argentina and Chile. At the Corporate level, GeoPark has an EHSS Coordinator based in Argentina responsible for developing systems, procedures and managing environmental and social performance across GeoPark’s operations. The EHSS Coordinator reports directly to the management team on performance. He is also responsible for managing social investment programs.

GeoPark has a small EHSS team based in Chile responsible for implementation of procedures and the integrated management system in the Chilean blocks. The team is headed by an Environmental Coordinator whose role has recently been expanded to include Corporate Social Responsibility. GeoPark is in the process of redefining the roles and responsibilities of the Coordinator. The responsibility for managing EHSS is shared with the Country Director who oversees environmental and social performance. GeoPark is in the process of hiring an EHSS Manager who will be responsible for managing environmental and social aspects of the operations in Chile.

GeoPark will hire a community officer to manage the social aspects of its operations including community engagement and land acquisition.

Environmental and Social Impact Assessment

In accordance with Chilean environmental regulations, environmental and social impact assessments (ESIA) studies will be required to be undertaken if and when GeoPark progresses to drilling activities. GeoPark will ensure that the ESIA meets both Chilean and IFC standards. For the seismic activities, GeoPark prepared a Forestry Management Plan for the Tranquilo Block as part of the requirement by the Chilean Forestry Department.

GeoPark will undertake ESIA studies for both Otway and Tranquilo Blocks in line with IFC Performance Standards prior to commencing of exploration stage drilling activities. GeoPark intends to commission a social baseline study for both blocks in November 2009. The study will also include a mapping exercise of all the estancias and number and types of livestock reared.

Prior to acquisition of the blocks, GeoPark conducted an independent rapid assessment of the blocks to assess and verify the current status of the environmental liabilities generated by the previous operators. An independent consultant assessed the environmental priority (high, medium and low) of each liability and provided a description of the nature of the liability. Most of these liabilities are described as abandoned wells, empty pits, scrap material, and pump pits. The assessment identified the existence of environmental liabilities in both the Tranquilo and Otway blocks. In the Tranquilo Block, the 20 identified environmental liabilities included 2 high (logging, drilling waste, hydrocarbons), 14 moderate (primarily scrap metal) and 4 low liabilities. In the Otway Block, the 30 identified liabilities included 5 high (solid waste, hydrocarbons), 19 moderate (scrap metal, septic), 4 low and 2 none. Under relevant legislation, GeoPark has no responsibility for environmental liabilities created by previous operators. Nonetheless, GeoPark has proposed remediation agreements measures to the former operators and is in the process of seeking resolution of the issue with relevant stakeholders.
Labor and Working Conditions

GeoPark Chile has a relatively small workforce with 62 employees based in Chile.

As per the Chilean requirements, GeoPark has in place a Staff Handbook that serves as both a Human Resources Policy and a Worker Code of Practice. The Handbook covers a wide array of aspects including but not limited to occupational health and safety, child and forced labor, wages, working hours, overtime, remuneration, leave, training and professional development. It also outlines the rules and obligations that have to be followed by the employees and provides a comprehensive summary of all applicable Chilean regulations on aspects related to health and safety at the workplace, employee rights and benefits among others. It also outlines GeoPark’s responsibility to provide a safe workplace, have a process for hazard identification and prevention and provide hazard awareness and safety training for all employees. A copy of the handbook is given to all new staff members subsequent to signing the employment contract. GeoPark is fully compliant with the Chilean Labor Law and the terms and conditions of employment are based on it. The terms and conditions of employment are also outlined in the employee contracts.

GeoPark has developed a work culture based on principles of rewards, respect and growth. These principles are embedded in GeoPark’s ambitions to create long-term value by attracting and retaining employees. To this end, GeoPark created an incentive program, the ‘Performance-Based Employee Long Term Incentive Program’ in which employees were provided the opportunity to own company shares. In 2008, one million shares were awarded to employees. The share awards are performance-based and take into account the employee’s contributions to the growth of the company. GeoPark employees hold 14 percent of issued IPO awards to date.

GeoPark exercises an open door policy and staff can at anytime speak to the Country Director regarding grievances. A joint committee comprising of employees and managers has been established that addresses issues related to workplace conditions and occupational health and safety. The committee meets once a month. GeoPark will formalize its grievance mechanism to enable employees raise their workplace concerns and ensure that they are addressed in a timely manner and are documented. The grievance mechanism will be included in the staff handbook.

Pollution Prevention and Abatement

GeoPark has specified procedures for the management of solid and liquid waste. Their contractors will be required to provide a plan for the management of waste which will be disposed at the Magallanes landfill. GeoPark will ensure that the waste is treated properly by requesting a receipt for final disposal from the landfill site, a cradle-to-grave approach.

Explosives will be used by GeoPark for the 2D-seismic activities. GeoPark has conducted a bidding process to select the contractor that will supply the explosives and the potential contractor has prepared a proposal with details for the storage, handling and distribution of the explosives. Accordingly, the contractor has specialized employees and is well recognized in the area of explosives for seismic activities. The contractor will consult GeoPark on selection of an appropriate area for the storage of the explosives which will have the appropriate security measures.

Community Health, Safety and Security

GeoPark’s concession blocks are located in the sparsely populated Patagonian steppes in Southern Chile. The two nearest communes are Rio Verde (Pop: 355) and Laguna Blanca (Pop: 600), located 80 km and 110 km from the Otway block respectively. The two nearest towns are (i) Punta Arenas (Pop: 121,533), located within the Otway block. The main prospects in Otway are approximately 50 km from Punta Arenas. Tranquilo Block border is approximately 30 km from Punta Arenas, but the main prospects located approximately 110 km from Punta Arenas; and (ii) Puerto Natales (Pop: 15.581), the second largest township, located 20 km from the Tranquilo block.

The blocks are located in large sheep raising ranches called “estancias” and the majority of the project’s activities will take place within these areas. These activities pose safety risks to the livestock that browse and graze in the estancias. GeoPark is working with the estancia owners to develop an operational plan to align the sheep rearing activities and project activities. The plan takes into account the sheep breeding season and outlines a schedule to move the livestock to various locations in the estancias away from the planned seismic activities. As part of the plan, GeoPark will assist the estancia owners with identifying alternative grazing areas and the best means to transport the livestock.

The project activities will include seismic surveys and possible exploration drilling that will also result in increased road traffic, possible increase in migration and disruptions to estancia activities.

The main risk to the community safety is increased vehicular traffic and the potential for accidents involving both humans and livestock. GeoPark will provide defensive driver training to its workers and will ensure that their Contractors follow similar requirements. SPEED includes a comprehensive emergency evacuation procedure. GeoPark will communicate this procedure to the communities located within the wider vicinity of the blocks, the Estancia owners and the regional and local authorities and emergency services.

GeoPark is not expected to use armed security, however, it is expected that areas such as the storage area for explosives will be secured and there will be entry procedures for authorized personnel only.

Land Acquisition and Involuntary Resettlement

As described above, the majority of the land in the Otway and Tranquilo Blocks is privately owned and used as sheep-rearing ranches or ‘estancias’. Some of the owners live in the Estancias but all their families live in Punta Arenas and Puerto Natales. The proposed seismic activities will require access rights be granted from the land owners and temporary use of the estancias. Such use may include the following impacts – transport of personnel, equipment and material (including explosives); need to temporarily relocate livestock to different sections of the Estancia; disturbance of surface soil and vegetation (including pasture land, 1.5 m wide strip within forested areas with cutting of trees <10 inches); surface drilling; vibration; and cutting and repair of fences (including wire fences). The potential impacts to vegetation are most significant in the period between October – May.

GeoPark intends to commence seismic activities in November 2009. The Sponsor indicated that seismic activities will only impact upon a portion of existing Estancia landholdings and that no Estancia is affected in its entirety. Current data indicates that 35 landowners located on 60 Estancias will be affected in the Tranquilo Block while 10 landowners located on 18 Estancias will be affected in the Otway Block. Implementation of seismic activities will require land owners to relocate their livestock to a different section of the Estancia. For smaller Estancias and those where the replacement pastures are not as productive, there may be a need to source alternative supplementary feed resulting in increased cost to the Estancia owners. As such some impact on livelihoods and income base may be anticipated. The seismic activities will not result in any physical displacement and no loss of livelihoods of waged employees working in the Estancias is anticipated as there will no retrenchment of the workers. In addressing impacts associated with temporary access to, use of and disturbance to land and operations during the seismic period, GeoPark has expressed its commitment to assessing the magnitude of impacts associated with seismic activities and providing compensation to the land owners for the temporary disruption and loss of economic livelihood.

The negotiation process with Estancia owners for impacts associated with seismic activities as well as land acquisition is based on a willing buyer-willing seller basis. There is no national legislation for land acquisition or a compensation framework in Chile. The rates for compensation are based on valuation adopted by previous operators in the area and Argentinean legislation for economic displacement resulting from exploration and production activities.

GeoPark has initiated consultation with the land owners in both Blocks and will conduct a series of presentations to provide the land owners with a detailed description of the project activities that will take place within the Estancias. GeoPark will also use this forum as a means to address any issues and/or concerns that the Estancia owners may have regarding the project activities. Reports describing initial meetings indicate that owners raised issues with regard to how houses, crops or irrigation and water bodies may be affected and compensated and the nature of the transect through forest areas. These issues were addressed with landowners reporting that they have concluded that seismic and agricultural activities were compatible.

The proposed (and accepted) compensation associated with seismic activities includes:
Fixed rate per kilometer of seismic. This amount is payable within three days of signature of the compensation agreement, at which the Owner must give receipt and compliance.
Fixed daily rate for compensation for loss of productivity stemming from loss of access, disruption of operations and any loss of productivity of pasture lands, for every day that Geopark are active on the property. The compensation to be paid covers damage to the surface or impact on livestock farming developed by owners such as: any damages for loss of productivity, nutrition, weight loss and / or wool and meat production, mortality, damage to the pasture, supplementary feeding of animals affected by the survey and / or that must be mobilized, among others. This amount is payable upon completion of the GeoPark seismic activities.

With regard to land acquisition, the land owners have established a committee to determine whether the compensation offered is adequate. There is an existing coal mine in the Otway Block situated within the premises of three Estancias. Given the land owners previous experience with various companies on land access issues, compensation and the on-going court issues, GeoPark anticipates the negotiation process with some of the land owners will be complex. GeoPark aims to reach an amicable settlement with all parties and intends to refrain from resorting to judicial remedies (under Chilean Law, the court will grant GeoPark access rights and fix compensation rates if negotiations fail). If GeoPark initiates legal procedures should the negotiations fail, the Company will explore opportunities to collaborate with the responsible government agency and play an active role to achieve outcomes that are consistent with Performance Standard 5. To facilitate the negotiation process, GeoPark will establish explicit procedures for valuation and compensation.

If and when GeoPark needs to acquire land for development of permanent facilities, GeoPark will develop a Land Acquisition and Compensation Framework consistent with Performance Standard 5 Land Acquisition and Involuntary Resettlement. The Compensation Framework will (i) identify all the affected Estancia owners; (ii) provide an inventory of affected assets; (iii) a description of the valuation methods for lost assets, disruption of the rearing activities, relocation of livestock; (iv) a schedule for compensation payment, location of livestock and return to the land after completion of the seismic activities; (v) a description of GeoPark’s grievance mechanism and how affected communities can access it; and (vi) a description of legal recourse available to the affected land owners. In developing the Framework, GeoPark will undertake a detailed review of the valuation currently adopted and update the rate of compensation consistent with the requirements of Performance Standard 5. GeoPark will also develop a grievance mechanism to receive and address specific concerns regarding compensation, relocation of livestock and any project related concerns. The grievance mechanism will include a recourse mechanism. GeoPark will designate personnel to receive grievances and coordinate with the land owners.

Biodiversity Conservation and Sustainable Natural Resource Management

The right-of-way for the seismic activities is expected to be 1.30 m for 2D-seismic and 3.0 m for 3D-seismic. GeoPark will try to utilize as much as possible the existing access roads, and minimize the clearance of vegetation. However, there is a portion of vegetation (forest) that will need to be cleared. GeoPark in conjunction with the Estancia owners has prepared a Forest Management Plan and submitted it to the environmental regulatory agency for approval.

Within the Otway block there are two protected areas “Reserva Laguna Parrillar y Reserva Magallanes”, however, the seismic lines do not cross these areas.

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