Tag: Timor-Leste

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.

The Cost of an Emerging National Oil Company

(Photo: Mavroudakis Fotis/Getty Images)

 

  • 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.