BUSINESS ETHICS

CASE STUDY: GAS OR GROUSE?

BY

ARINDA OKTAVYASTI

SATRIO HARYOSENO

MASTER OF MANAGEMENT

GADJAH MADA UNIVERSITY

2010

OVERALL

Questar corporation is an energy company with asset valued at about $4 billion which is the

main developer of the gas wells arround the Pinedale Mesa, an area that is famous at the

gateway to the hunting, fishing, and hiking treasures. Ocassionally elk, mule deer, pronghorn

antelope and other wild life, including the imperiled greater sage grouse, descent from their

habitats atop the mesa and gingerly make their way around and between the questar wells

around Pinedale. Not suprisingly, environmentalist are at war with questar, whose expanding

operations are increasingly encroaching on the wild life habitats that lies atop the mesa. Yet

the natural gas that questar pumps up from beneath the mesa is a desperately needed resource

that provides the nation with clean and cheap source energy.

CHRONOLOGICAL

It was not until the mid 1990s industry developed techniques for fracturing the

sandstone and freeing the gas

In 1998, Questar Corporation drilled its first succesful test wall on the Pinedale Mesa.

Before, it was not feasible because the gas was trapped in tightly packed sandstone

that prevented it from flowing to the wells and no one knew how to get it out.

In mid-2000, Bureau of Land Management (BLM) approved drilling up to 900 wells

on federal lands sitting on a top of the Pinedale Mesa.

By the beginning of 2004, Questar had drilled 76 wells on the 14,800 acres it leased

from the federal government and had plans to eventually drill at least 400 more wells.

In May 2004, the U.S and Wildlife Service announced that it would begin the process

of studying whether the sage grouse should be categorized as an endangered species.

Questar opposed, because once this was done, large areas of federal land would be

off-limits to drilling, mining and development. 80% of Wyoming is considered sage

grouse habitat, including much of Pinedale Mesa.

The BLM required Questar to cease all drilling operations on the mesa each winter

from November 15 to May to protect the animals. Because sage grouse is not only the

the species affected by Questar drilling operations, but also mule deer, elk, moose,

and pronghorn anterlope.

BENEFITS

Energy experts welcomed the new supply of natural gas, which burns more cleanly

than any other fossil fuel such as coal, diesel, oil, or gasoline.

Increasing jobs, tax revenue and a booming local economy. 60% of the state budget is

based on royalties the state receives from coal, gas and oil operations.

COST

Large areas of the mesa provide habitat for mule deer, pronghorn sheep, sage grouse,

and other species.

Sage Grous population’s is decreased

Sage grous is a colourful bird that today survives only in scattered pockets in 11

states.

It is estimated that 200 years ago the birds numbered 2 million.

By the 1970s, their number fallen to about 400,000.

A study completed in June 2004, the number only between 140,000 and 250,000

of the birds left.

Another animals at risk

The mesa is an important migration route and wintering ground

"Environmentalists feared that if the animals were prevented from reaching their

winter ranges, or if the winter ranges became inhospitable, the large herds would

wither and die off."

LOBBYING

Questar and other companies formed a coalition led by Jim Smith, to lobby the

Bush administration to keep the grouse off the endangered species list.

Dru Bower, vice president of the Petroleum Association of Wyoming said that

“[endangered species] listings are not good for the oil and gas industry, so anything

we can do to prevent a species from being listed is good for the industry.”

NEW TECHNOLOGY

In 2004, Questar submitted a proposal to BLM to invest in a new kind of drilling rig

technology called directional drilling.

The benefit of the new technology is:

Minimized the land occupied by the wells

Reduced the number of required road ways and distribution pipes.

Instead of ccarrying liquid waste away from operating wells on noisy truck, the

company would build a second pipe system that would pump liquid wasted away

automatically

Would substantially reduce any harmful impact that drilling and pumping had on

the wildlife inhabiting the mesa.

CONCERN OF THE NEW TECHNOLOGY

The added cost for the 400 additional wells Questar would total $185 million.

The company can justify the extra cost if it can drill and complete all the wells on a

pad in one continous operation which continued through the winter. They could finish

drilling all wells in 9 years instead of 18.

RESULTS

To allow the company to test the feasability of directional drilling and to study its

effect, BLM allowed Questar to drill at a single pad through th winter of 2002-2003

and again throught the winter 2003-2004. The 5 year study would continue until 2007,

and hoped to be permitted until then.

BLM said there was “no conclusive data to indicate quantifiable, adverse effect to

deer” from the drilling.

The Upper Green River Valley Coalition sued the bureau for failing to adhere its own

rules when it allowed Questar to drill on mule deer range on the mesa during winter

and for failing to conduct an analysis of the potential impacts before granting the

permits.

QUESTIONS

1. What are the systemic, corporate, and individual issues rose in this case?

a. Systemic Issues

The government has to look up in the macro view. Not just from the economical

reasons, the government has to look from the ecological point of view. Seeing the fact

that Questar drilling has benefited the local economies as well as increasing welfare,

there are also concerns about the endangered sage grouse and other wildlife

population in the surrounding area. In addition, with the rising need of clean energy,

the natural gas drilling has also become very important.

b. Corporate Issues

The issues rising within Questar is how the company should be able to meet the

demand of the natural gas without having to be sued over some environmental

matters. Moreover, as the drilling operations are forced to stop, next to the rising

costs, there would be more lay-offs, of which would damage the employees trust and

thus creating more problems.

c. Individual Issues

Jim Smith, a former communications director for President George W.Bush

Energy Task Force, tried to lobby the Bush administration to keep the grouse

off the endangered species list, encouraged "grass-roots opposition" to

"provide political cover", and suggested "funding scientific studies" to show

the bird was not endangered.

Dru Bower, vice president of the Petroleum Association of Wyoming said that

“[endangered species] listings are not good for the oil and gas industry, so

anything we can do to prevent a species from being listed is good for the

industry.”

George W. Bush, the president of USA, said that new sources of domestic

energy are key to the country's economic future, he came to power seeking to

unsnarl bureaucratic red tape, speed government's issuance of permits and

open up as much public land as possible. Once in office, he attacked Clinton-

era proposals to create national monuments and tried to open 58 million acres

Clinton had closed to road building, logging and drilling.

2. How should wildlife species like grouse or deer be valued, and how should that be

balanced against the economic interests of a company like Questar?

It is extremely difficult to put on wildlife species into monetary valuation. Some of

available research even mentioned that one of the ways of valuating the wildlife

species is to count on the effort made on the conservation. The higher the

conservation cost is, the higher is the monetary value. But however, the wildlife

valuation isn’t all about monetary aspects. There is an environmental balance needs to

be concerned as well. Basically, valuing them isn’t an easy job.

However, when it deals with company’s economic interest such as Questar, there

should be an effort by the company itself to both reserving the environment as well as

providing some conservation funds to help the work of conservation.

3. In light of The US economy’s dependence on oil, and in the light of environmental

impact of Questar’s drilling operations, is Questar morally obligated to cease its

drilling operations on the Pinedale Mesa?

Basically, Questar is morally obliged, but it is definitely not the only one having the

obligation. The Questar company should continue their innovation for drilling, so the

environment and animal around Questar can be survive and have a chance to breath.

4. What, if anything, should Questar be doing differently?

From begining they should consider the solution of the impact for environment and

animals arround Questar.

5. In your views, have the environmental interest group behave ethically?

Although the environmental interest group is fighting over for the sake of the

environment, they do not fully ethically behave. By asking the company to stop

drilling in the winter, it would cause the cost leap for the company as well as the lay-

offs of workers that need to be considered.

They cannot simply weighing for one side without thinking over the result of action in

the other side.