Governance Challenges for Emerging Oil and Gas Producers

This paper presents key questions of concern to emerging oil and gas producers and lays out possible policy options. These producers face a particular set of governance challenges because they are often faced with capacity constraints and have limited information on their resource base. There is a wide variety of national circumstances that affect which policy and investment options are available to them, such as the size of the resource base, state administrative capabilities and oil and gas experience. The paper focuses on two sets of policy challenges. One relates to designing the licensing terms and sector legislation in a manner that attracts the most qualified investors under terms that are beneficial to the country in the long-term. The second is to set up capable institutions to oversee and monitor resource development. This challenge is compounded in a context of uncertainty about the size and lifespan of reserves and, therefore, also about future revenues.

The paper is available to download at the link below.

Guidelines for Good Governance in Emerging Oil and Gas Producers

Guidelines for Good Governance in Emerging Oil and Gas Producers 

Over the last few years significant new oil and natural gas reserves have been discovered in East and West Africa, as well as in the Eastern Mediterranean, the Caribbean and the Asia-Pacific region. These recent discoveries have very quickly added several new countries to the ranks of the world’s oil- and gas-producing nations, and these emerging oil and gas producers have shown a strong interest in receiving advice on governance. They are keen to avoid the mistakes that have led to accountability failures in other more established producers, and which have prevented some producers from reaping the full economic benefits of their resources. The purpose of these Guidelines is to help emerging producers and the groups that advise them to think critically about the policy options that are available, and that would be most effective during the first stages of exploration and development, or during a restructuring of the country’s oil and gas sector. The goal is not to produce a complete guide to governance of the petroleum sector, but rather to offer guidance on making effective decisions about the structure and rules of the sector in an imperfect context.

Guidelines for Good Governance in Emerging Oil and Gas Producers – French

Au cours des dernières années, d’importantes réserves de pétrole et de gaz naturel ont été découvertes en Afrique de l’Est et de l’Ouest, ainsi qu’à l’est du Bassin méditerranéen, dans les Caraïbes et dans la région Asie-Pacifique. Ces découvertes récentes ont vu très rapidement plusieurs pays rejoindre les rangs des nations productrices de pétrole et de gaz, et ces producteurs pétroliers et gaziers émergents ont manifesté un intérêt considérable à recevoir des conseils en matière de gouvernance. Ils ont particulièrement à cœur de comprendre les erreurs qui ont mené à un manque de responsabilisation chez d’autres producteurs plus expérimentés, et qui en ont empêché certains de récolter tous les avantages économiques de leurs ressources. L’objectif de ces Directives consiste à aider les producteurs émergents ainsi que les groupes qui les conseillent à porter un regard critique sur les options de politiques susceptibles de s’avérer plus efficaces dans le cadre des premières phases d’exploitation et de développement, ou en cas de restructuration du secteur pétrolier et gazier d’un pays. L’objectif n’est pas de produire un guide complet sur la gouvernance du secteur pétrolier, mais plutôt de proposer des conseils visant à une prise de décision efficace quant à la structure et aux règles appliquées dans un contexte imparfait.

Guidelines for Good Governance in Emerging Oil and Gas Producers – Portuguese

Durante os últimos anos, foram descobertas novas reservas de petróleo e gás natural na África Oriental e Ocidental, assim como na zona Ocidental do Mediterrâneo, Caraíbas e Ásia-Pacífico. Estas recentes descobertas adicionaram muito rapidamente vários novos países às listas mundiais de nações produtoras de petróleo e gás, sendo que estes produtores de petróleo e gás emergentes demonstraram forte interesse para receberem aconselhamento sobre gestão. Pretende evitar os erros que conduziram a falhas de responsabilidade por parte de outros produtores mais estabelecidos e que impediram que alguns produtores colhessem as vantagens económicas plenas dos seus recursos. O objetivo destas Diretrizes consiste em ajudar os produtores emergentes e os grupos que os aconselham a pensar de forma crítica acerca das opções de políticas mais eficazes durante as primeiras fases de exploração e desenvolvimento, ou durante a restruturação do setor nacional de petróleo e gás. O objetivo não consiste em produzir um guia completo sobre a gestão do setor petrolífero; em vez disso, pretende-se oferecer orientações sobre como tomar decisões eficazes acerca da estrutura e das regras do setor num contexto imperfeito.

Guidelines for Good Governance in Emerging Oil and Gas Producers – Swahili

Katika miaka michache iliyopita kiasi kikubwa cha akiba mpya ya mafuta na gesi asilia kimegunduliwa katika Afrika Mashariki na Magharibi, kama vile katika Bahari ya Mashariki, Caribbean na kanda ya Asia-Pacific. Uvumbuzi huu wa hivi karibuni uliongezea kwa haraka sana nchi kadhaa mpya kwa safu ya mataifa ya kuzalisha gesi na mafuta duniani, na hawa wazalishaji wanaoibuka wa mafuta na gesi wameonyesha nia imara katika kupokea ushauri juu ya Usimamiaji bora. Wamekuwa makini kuepuka makosa ambayo yamepelekea kushindwa katika uwajibikaji miongoni mwa wazalishaji walio imara zaidi, na ambayo yamezuia wazalishaji wengine kuvuna faida kamili za kiuchumi kutoka kwa rasilmali zao. Madhumuni ya mwongozo huu ni kuwasaidia wazalishaji wanaoibuka na makundi ambayo huwashauri kufikiri kwa umakinifu kuhusu chaguo za sera ambazo zitakuwa na ufanisi zaidi katika hatua za kwanza za utafutaji na ukuzaji, au wakati wa kuunda upya sekta ya kitaifa ya mafuta na gesi. Lengo sio kutoa mwongozo kamili wa Usimamiaji wa sekta ya petroli, lakini badala yake ni kutoa mwongozo wa kufanya maamuzi ya ufanisi kuhusu muundo na sheria za sekta katika muktadha wa mazingira yasiyo kamili.

New Petroleum Producers Survey Policy Options In Wake of Oil Price Slump

Countries seeking to develop newly-discovered petroleum resources are facing a fall in global oil prices, with competition from the ‘shale gas revolution’ in the United States, as well as renewable energy sources.

At a New Petroleum Producers Discussion Group in Tanzania, organised by Chatham House and co-sponsored by the Commonwealth Secretariat, authorities from more than 20 countries met this week to find solutions to these and other shared challenges.

The four-day forum from 30 June to 2 July, at which a set of Guidelines on Good Governance for Emerging Oil and Gas Producers was released, was attended by government ministries and national oil companies from Belize, Guyana, Kenya, Mauritius, Mozambique, Jamaica, Seychelles, Trinidad and Tobago, Tanzania, and Uganda, among other nations.

“In the midst of the oil crisis there is less capital available for investment,” commented Michael Mwanda, Chairman of the Tanzania Petroleum Development Corporation, which hosted the meeting in Dar es Salaam. “Some projects which were pegged on a high oil price are now becoming uneconomic and difficult to operate.

“We need to learn from each other and share experiences on how to reduce costs, operate efficiently and become more competitive,” Mr Mwanda said.

Addressing the forum, Ekpen Omonbude, Natural Resources Adviser at the Commonwealth Secretariat, remarked: “This price decline has necessitated a critical look at strategies to manage petroleum resources, from development programmes to responsible wealth management, to ensure benefits for future generations.”

Dr Omonbude stressed that while the slump in the price of oil – from over US$100 a barrel in 2014 to around US$60 today – presents immediate challenges, these can be mitigated through the adoption of flexible fiscal regimes, increased economic diversification, the development of good governance regimes and revenue transparency.

“Our mission is clear – to help position our member countries to realise the potential of their resource wealth as a driver of sustainable development and economic prosperity,” the Commonwealth representative said.

The New Petroleum Producers Discussion Group was established in 2012 to help countries think critically about policy options available either during the first steps of exploration and development or when restructuring governance arrangements. Options include setting up regulatory institutions and drafting regulations and laws that encourage investment, while balancing the needs of society and environmental protections.

This week marked the first time the discussion group has met outside London and included a final-day national seminar for representatives of Tanzania’s oil and gas sector. Co-sponsors of the initiative include the Natural Resource Governance Institute and the Africa Governance Initiative.

The Guidelines for Good Governance in Emerging Oil and Gas Producers, a synthesis of proposals put forward at each discussion group, seek to guide national authorities to pursue policies which follow good practices, but which also respond to national contexts.

Dr Valérie Marcel, Associate Fellow at Chatham House, principal author of the guidelines, said: “The emergence of shale oil and new renewable technologies offer opportunities and challenges. How the emerging producer is affected and will respond is what we have been debating. One of the main issues is how to adjust to a low price environment, asking what impact is this going to have on licensing terms and the ambitions of national oil companies.”

She added: “Emerging producers are thirsty to learn from their peers about what has worked elsewhere and what advice to give. More established producers want to know whether they are doing things right and what pitfalls they should avoid. This is a really important learning process.”

During the forum, participants exchanged experiences on how to attract investment while preserving long-term national interests, managing expenditure plans as well as ways to guard against abuses and fraud in contracts and licensing. Training sessions focused on involving local suppliers in supply chains, the design of fiscal systems and new information tools.

Eddy Belle, Chief Executive of PetroSeychelles, the national oil company of Seychelles, said: “[Petroleum] is a very dynamic business – there is new technology coming in and new ways of doing things. What Chatham House is doing with the help of the Commonwealth Secretariat is getting people together so you have the chance to learn from the mistakes as well as the successes of others.”

Bashir Hangi, Communications Officer for Uganda’s Petroleum Exploration and Production Department, commented: “Such a forum helps us a lot as emerging producers. We peer review ourselves, and our people go home with a lot of advice. One piece of advice I would share is that you cannot ignore your stakeholders – civil society, academia and communities where there are operations. They should not be taken for granted; they should be brought on board and be involved in the management of the resource.”

Anthony Paul, Managing Director of the Association of Caribbean Energy Specialists, said: “Oil and gas resources give opportunities to deepen industrialisaton, providing power and access to better lighting, heating and cooking facilities as well as petrochemicals and fertilisers. There are also benefits from developing the services industry. What strikes me most is that all countries want the same thing: they want the resource to benefit their citizens.”

Annual Meeting 2015

This forum was the third meeting of the New Petroleum Producers Discussion Group. It was hosted by the Tanzania Petroleum Development Corporation in Dar es Salaam. The group’s 2015 meeting was held against the backdrop of a steep fall in global oil and gas prices, which has dampened the exploration boomin frontier areas and caused delays to and the shelving of development projects in many areas. While emerging producers around the table reported a slowdown in investments, there was nonetheless the expectation –and, indeed, the hope –that the market disruption would prove only temporary. Comments made by participants during the course of the meeting, which took place over three to four days, showed that this initial optimism waned and the new price reality was increasingly accepted. The discussions focused on how national development plans, licensing, messaging to the public and local content could be adapted to the new context.

A summary of the Annual Meeting is available to download at the link below.

Government and company response to the crisis

During this time of global pandemic and oil market crash, maintaining and fostering resilience is a focus in all of the member countries of the New Producers Group. This virtual meeting examined how oil companies and governments are thinking about the crisis and how they can respond to foster resilience of their people and organisations. This meeting was under Chatham House Rule. The full recording is available on the members’ platform.

Highlights of the meeting

Is Lebanon Set for an Oil Bonanza?

‘Congratulations to the Lebanese people (…) on Lebanon entering the club of oil countries,’ tweeted the country’s energy minister, Cesar Khalil, after Lebanon’s first petroleum licensing round finally took place last fall. On 14 December 2017, the Lebanese government approved the bid by a consortium of three companies – France’s Total, Italy’s Eni and Russia’s Novatek – for two offshore blocks, after process had been held up for three years while political parties were in deadlock over the nomination of the president and the approval of key legislation.

Political expectations are high that discoveries will be made and the legislature is reviewing draft bills establishing a sovereign wealth fund and a national oil company. But there is a risk that Lebanon overplays its hand.

Lebanon holds estimates of potential natural gas reserves of 25 trillion cubic feet (tcf) based on seismic studies, but these have not have been confirmed by drilling and may not amount to reserves that are commercially viable. The Lebanese public, which has expressed both frustration and apathy over the repeated delays and policy paralysis, will call the government’s bluff if there are dry wells, if future discoveries are not commercially viable or the sector does not deliver the transformative impact that was promised.

Managing expectations

A number of politicians have stoked hope in the power of the petroleum sector to change Lebanese lives. In December 2013, then-Energy Minister Gebran Bassil said oil and gas revenue would bring ‘economic independence’ to his country, covering the public debt, creating jobs and spreading wealth. A nationwide billboard campaign advertised these promises. Government officials have circulated figures of potential resources – in the order of 95.5 tcf of natural gas with 50 per cent probability, which were interpreted by non-experts as proved reserves. Any estimate of the petroleum riches of Lebanon is educated guesswork until a well is drilled.

The Lebanese government should be explaining to the public that the risk of exploration failure is high and the journey to production is a lengthy one. Exploration won’t start before 2019. The consortium has committed to drill two wells in 2019, one in each block. There will likely be dry wells. According to Richmond Energy Partners data, industry commercial success rates for exploration between 2012 and 2016 were 31 per cent overall and 7 per cent for frontier provinces such as Lebanon. If there is a discovery, revenues from production would likely not arrive until 10 years after the first bidding round.

If the long timeline to (possible) production and the roadblocks along the way are not explained, citizens might (reasonably) assume that the absence of transformative revenues is down to corruption. The World Bank’s Worldwide Governance Indicators put Lebanon in the 14th percentile globally in 2016 in terms of perceptions of ‘control of corruption’, which indicates a fertile ground for public mistrust in the government’s handling of petroleum revenues.

A government-wide coordinated public communication strategy on the petroleum sector would help to deliver a balanced message on the sector’s prospects. To regain trust, the government should also make contracts available to the public and introduce open competitive tendering processes.

Minimizing geopolitical risk

Lebanon’s exploration programme is taking place in a context of high geopolitical risk. One of the blocks awarded straddles an 860-square-kilometre zone of disputed waters with Israel. The border has been a hot button issue for years between the two countries, which are technically in a state of war. Israel and Lebanon each unilaterally demarcated their exclusive economic zones and neither can legally be considered as final.

When drawing the acreage map to include the disputed waters, Lebanese officials had rightly tried to contain tension by stating that this was aimed at asserting sovereign claims and companies might not explore in that area. But the December award introduces fresh uncertainties, because the winning consortium has committed to doing just that.

The geopolitical tension between the two countries draws on issues beyond resources and there has been an escalation of aggressive posturing between them in the past year. With the Syrian conflict drawing to an end and Saudi Arabia and Israel both trying to contain Iran’s expansion in the region, Lebanon may be a theatre for proxy wars. In such a context of heightened regional tensions, the development of resources in or near disputed waters could be used as a trigger for war.

Mitigating this risk at this stage is critical. To de-escalate tensions, the government of Lebanon or the consortium could clarify where exploration work will be confined within the awarded block. A longer term solution lies in the settlement of the border dispute through mediation. The legal courses of action – arbitration and bringing the case to the International Court of Justice – are problematic because they require a commitment from both parties to respect the decision and to recognize the court’s jurisdiction, and the latter option requires Lebanon to recognize the state of Israel.

Lebanon has overcome many internal challenges to get this far in the development of its petroleum sector; but the road to joining the ‘club of oil producers’ is long and perilous, and the real challenges are now starting to take shape. Mitigating regional risks and managing the public’s expectations are critical to set the country on the right track.

Prospects for Good Governance in Lebanon’s Nascent Petroleum Sector

There is increased interest in oil and gas exploration offshore Lebanon, but the country lags behind its neighbours in developing its resources. The institutional and legal framework necessary to this process has been slow to emerge as a result of political infighting. However, thanks to relatively high state administrative capacity and support from foreign technical advisors, an adequate framework for investment has been created. Future governance challenges relate to less satisfactory standards in terms of transparency and the risks of corruption.

The report is available at the link below.

Establishing a National Oil Company in Lebanon

Countries which are exploring for or have discovered oil and gas are keen to increase national participation in their petroleum sectors and often see a national oil company (NOC) as a corporate vehicle for the defense of national interests in the upstream. Many of these emerging producers, including Lebanon, have expressed interest in guidelines on how to time the creation of an NOC and determining an optimal role for it. In Lebanon, there have been calls by politicians and commentators for the creation of an NOC. However, the Offshore Petroleum Resources Law (OPRL, article 6) clarifies a necessary threshold for creating an NOC: ‘When necessary and after promising commercial opportunities have been verified, the Council of Ministers may establish an NOC on the basis of a proposal by the Minister based upon the opinion of the Petroleum Administration.’ This reasonable threshold is clearly not met in Lebanon, as the country has not held its first licensing round. In the pre-discovery phase an NOC will therefore not be needed in Lebanon. It is useful nonetheless to examine the idea more closely and debate it, should it receive more serious consideration at a later stage. Key questions in this process are: When is the right time to create an NOC? What would Lebanon want an NOC to do? What would this role cost? What corporate governance mechanisms would an NOC need in order to perform effectively and avoid major pitfalls? What governance framework would keep it in check? Ultimately, if sufficient benefit to Lebanon cannot be established, the idea of creating an NOC should be questioned. The experience of other emerging producers can provide Lebanon with answers to some of these questions. Section 1 reviews common rationales for creating an NOC, contrasting the experience of established and emerging producers. Section 2 examines various types of NOCs and considers the potential benefits and risks of each model in the Lebanese context. The aim of this paper is not to recommend a specific model, nor to advise for or against the creation of an NOC in Lebanon, but rather to narrow down the available options taking into account the national context. Section 3 focuses on the governance framework that would be required to establish an NOC that is capable and accountable. The paper concludes with a review of the most appropriate NOC models for each stage of development of the petroleum sector.

Large Oil Discovery Generates Hope, Challenges in Guyana

The Liza oil field discovered off Guyana’s coast in 2015 might be the world’s biggest oil discovery in the last two years. The discovery may ultimately produce 1.4 billion oil-equivalent barrels of crude. This could have a massive economic impact on a country currently ranking among the poorest in the Latin America and Caribbean region.

A link to the original article is available below.

Contemplating Oil Prospects, Suriname and Guyana Look to Peers

The article reports on the New Producers Group annual meeting that was held in Suriname in 2017. At the meeting, government officials from Suriname and Guyana were keen to learn from the experiences of their peers in the other new oil hotspots. Suriname and Guyana find themselves at different points in their life cycles as prospective oil producers. Guyana has already made large discoveries, while Suriname is at a more speculative stage of offshore exploration. Institutionally, Suriname has developed a small but capable administrative and commercial body—Staatsolie—as a result of its years of small-scale production, while Guyana is just beginning to build its administrative architecture in response to the discovery. But the two countries face a similar set of issues. Both have small populations and small economies. Suriname’s GDP is USD 3.6 billion, placing it 158th in the world. Guyana, which has a population just shy of 800,000, has a GDP of $3.4 billion, placing it 159th. This means that significant oil production could have a massive impact on these economies. If managed correctly, successful oil projects could mean a major boost to the development agenda of either country. But the potential for negative distortions—including budget volatility and the disruption of other sectors—is high if risks are not managed effectively.

A link to the original article is available below.