Tag: regulator

Institutional Design in Low-Capacity Oil Hotspot

Oil drilling block managed by Tullow Oil at Lokichar basin in Turkana county in 2017. Five years after the discovery of oil, and four since a giant aquifer was found, drought struck again, shattering the dreams of a different future for Turkana. (Photo credit Tony Karumba/AFP via Getty Images)

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.

Annual Meeting 2019

The 7th Annual Meeting of the New Producers Group was held in Kampala on 11–15 November 2019 and hosted by Uganda’s Ministry of Energy and Mineral Development, the Petroleum Authority of Uganda and the Uganda National Oil Company. The meeting included two days of specialised training covering topics such as risks relating to the development of the petroleum sector, revenue management, contract negotiation, communications in the natural resource sector, national oil company performance drivers, and oil metering, valuation and marketing. The remainder of the meeting consisted of discussions and exchanges between the participating countries. The theme of the discussions was ‘Building Capacity and Institutions’. The 2019 discussions showed a heightened concern for the impact of the global energy transition on emerging petroleum producers and their pursuit of long-term economic benefits from oil and gas production. The uncertainties surrounding the transition permeated discussions throughout the week, including a dedicated training session on navigating emerging risks in the sector, a plenary discussion examining various market scenarios and a discussion of the intersection between Uganda’s oil ambitions and climate commitments as part of the national seminar organized by the host government. These discussions provided an opportunity for a nuanced and detailed sharing of perspectives as governments seek to manage risk. The week’s informal and plenary discussions also demonstrated the growing maturity of the network and the interest of participating countries in deeper cooperation.

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

Establishing a National Oil Company in Lebanon

Photo: Beirut, 2018; Valerie Marcel

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.