Risky Bet: National Oil Companies in the Energy Transition

KEY MESSAGES
• If national oil companies follow their current course, they will invest more than $400 billion in costly oil and gas projects that will only break even if humanity exceeds its emissions targets and allows the global temperature to rise more than 2oC.
• Either the world does what’s necessary to limit global warming, or national oil companies can profit from these investments. Both are not possible.
• State oil companies’ investments could pay off, or they could pave the way for economic crises across the emerging and developing world, and necessitate future bailouts that cost the public. Some oil-dependent gov- ernments in Africa, Latin America and Eurasia are making particularly risky bets with public money.
• Many national oil companies have incentives to continue spending big on new oil and gas projects. As a result, company officials might not, on their own, change course to account for the energy transition away from fossil fuels toward green energy, nor make investment decisions that serve the interests of citizens.
• Governments—through finance and planning ministries, presidential offices and public accountability bod- ies—must act to promote a more sustainable economic path. Governments should:
o Understand the extent of national oil companies’ exposure to a decline in oil and gas prices
o Revisit rules on cash flows into and out of state-owned companies
o Require or incentivize lower-risk investment decisions
o Benchmark and measure national oil company performance, improve corporate governance, and report
consistently to citizens

You can access the full report in the link below. The executive summary is available here.

Annual Meeting 2020

The 8th Annual Meeting of the New Producers Group took place from 1–3 December 2020, with a focus on fostering resilience in emerging producers.

The meeting was held in the context of the COVID-19 pandemic, which has precipitated a crash in oil markets, hampered or halted operations across the hydrocarbon sector and caused many oil and gas investments to be delayed or shelved. In addition to these immediate effects, there will be long-term ramifications associated with the global energy transition towards a lower-carbon economy.

The meeting focused on how new producers can adapt their approaches in light of the shocks from the pandemic, and the prospects that the global energy transition will precipitate significant changes in oil and gas markets.

At the outset, the group’s organizers encouraged participants to see the meeting as an opportunity to rethink their assumptions about the value of the oil and gas sector to their countries, and to work together to develop resilient strategies that can benefit emerging and established producers alike. Acknowledging apprehension over the uncertainty of the moment and the long-term ramifications of the global energy transition, the host organizations emphasized the value of capacity building and collaboration across agencies, nationally, regionally and internationally.

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

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.

Institutional Design in Low-Capacity Oil Hotspot

This paper focuses on low-capacity countries courted by investors seeking access to petroleum resources during the exploration boom. In emerging oil hotspots, there has been growing interest in promoting national participation, largely by securing stakes in projects for national oil companies (NOCs). Some of these countries are new producers or remain in the exploration phase without having made any significant commercial discoveries, while others are established producers on a relatively modest scale and are now attracting renewed interest. The key question that emerges in all cases is how to organize and manage the petroleum sector in order to maximize the public benefit derived from oil and gas resources. In particular, what role should the NOC and other governing bodies have? This paper addresses the relationship among institutional structure and the goals of economic development and political accountability. It also examines the argument that oil producers are most likely to succeed when they separate commercial, policymaking and regulatory functions across distinct public bodies and restrict NOCs from performing any regulatory duties. Following on existing literature, this paper argues that the capacity level of a country at the time it seeks to establish an institutional structure has a major impact on which sorts of arrangements are most likely to succeed.

The report is available to download at the link below.

The Cost of an Emerging National Oil Company

 

  • The fall in oil prices since mid-2014 has profoundly changed the prospects for national oil companies (NOCs). If, as seems likely, prices remain low for a number of years, investors will be far more cautious, international oil companies will see reduced cash flows, and many exploration projects will be put on hold or cancelled. NOCs, and the oil and gas industry as a whole, must reconsider their strategies.
  • This will have an impact on the ambitious plans that some emerging producers had nurtured for national participation in the petroleum sector, forcing them to refocus on an affordable strategy for developing upstream capabilities.
  • Governments of emerging and prospective producer countries, and their NOCs, need to understand the cost of various NOC roles, and how these can be financed at different stages of developing the resource base. This will enable them to formulate clear and appropriate strategies for the future.
  • The current environment offers an opportunity for governments to refocus their efforts on defining a mandate that supports their national vision and priorities. This requires an evaluation of the resource base, national capabilities (including those of the NOC) and possible revenue streams, so that the NOC can be tasked with a role it can execute and the state can afford.
  • Governments must approve clear revenue streams for NOCs.
  • NOCs should focus on costs, as well as on strong accounting and reporting standards.
  • Governments and NOCs should be strategic about capacity-building, so that efforts and scarce resources are dedicated to building the right skills and using them on the job.

The report is available to download at the link below.

Enhancing the Performance of African National Oil Companies

Countries endowed with oil and gas hope these resources will lift their economies. They create national oil companies (NOCs) to act as vehicles for national participation in the oil and gas sector, to capture a greater share of the resource rents and act as catalysts for the implementation of broader development goals. The fulfilment of these aspirations depends on the technical and commercial ability of the NOCs, as well as the operational environment provided by their governments. The ability of NOCs to carry out their mandate should therefore be assessed, as should the inducements offered by their government. This study proposes a methodology to evaluate and benchmark the performance of African NOCs, taking into account the regulatory and policy environment in which they operate. It also offers pathways for enhancing their processes and capabilities.

This report was drafted for the African Development Bank. The below document is the authors’ manuscript completed in January 2020. Publication by the AfDB is forthcoming in 2021.

National seminar for Guyana, Good Governance: Preparing for First Oil

The Good Governance: Preparing for First Oil in Guyana seminar was held in Georgetown on the 17 and 18 November 2016. A high-level discussion on 17 November featured ministers, members of parliament, high-ranking civil servants, and civil society leaders. Following the significant oil discovery made offshore in Guyana, this seminar was designed to help policymakers prepare for first oil production; to review policy options (and the trade-offs involved in pursuing the various options); and to discuss what changes in laws and institutions would be required to best prepare for oil production. On 18 November, members of the legal and accountancy professions were invited to participate in a more focused training session on finance and the legal framework for the petroleum sector. Discussions on both days were enriched by participants from other emerging and established producer countries as well as oil industry representatives.

A summary of the National Seminar is available to download at the link below.

Annual Meeting 2014

The New Petroleum Producers Discussion Group convened for its second meeting May 12-13 at Chatham House. The meeting brought together national oil company (NOC) executives, government officials and civil society representatives from 18 different emerging producer countries, key governance advisory groups, and some large and smaller oil companies for a rich and open conversation about the challenges faced in the early stages of development of petroleum resources. This provided a unique opportunity for producers to learn from their peers.

These Summary Notes will review the following key issues, which were discussed at the meeting:

  • Meaningful involvement of communities in decisions about the petroleum sector
  • Ensuring investor accountability for operational risk in a low-capacity setting
  • Allowing contracts to change with the rapidly changing environment of emerging producers
  • Can emerging producers afford an “operator” NOC?
  • Should NOCs take on a state agency role?
  • Problems with coordinating foreign technical advice; and what one official called “advice fatigue”

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

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.