Guidelines for Good Governance in
Emerging Oil and Gas Producers
For the full text of the Guidelines for Good Governance in Emerging Oil and Gas Producers
(3rd Edition, 2016) please visit the Chatham House website.
Materials provided by Chatham House (c) The Royal Institute of International Affairs.
Introduction
• The New Petroleum Producers Discussion Group brings together
officials from over 25 emerging producer countries in an annual
forum.
• Together the group examines available policy options appropriate
for countries in the first steps of development of petroleum
resources and promotes peer-to-peer exchange.
• International best practice may not be the best advice.
 More appropriate practice – National context
 More effective practice – Rapid results
 Better practice – Incremental improvements to governance
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What should emerging producers do with these Guidelines?
• Conduct an open consultation
 Decide priority objectives
 Decide sequence of steps to achieve these
• Plan for success
 Devise an investment framework that can adapt
 Build change into the institutional set up for governance of the
sector
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Recommendations for incremental governance
improvement
Potential policy objectives
Assessment and prioritization
National vision
Role for energy sector
Elaborate a strategic vision for the sector
Assessment
of reserves
and
capabilities
Attract the most qualified investor
Maximise economic returns to the state
Earn public trust & manage public
expectations
Increase local content
Accountability
Organisations
held to account
for
performance
Reassess
every 3-5
years
Policy objectives
Prioritization and
attribution of
roles and
responsibilities
Develop capable national organisations
Increase accountability
Safeguard the environment
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Enablers
Financing,
capabilities,
autonomy,
governance
4
Aim for these 5 principles of good governance
1
Clarity of goals, roles and responsibilities
2
Enablement to carry out the role assigned
3
Transparency and accuracy of information
4
Accountability of decision-making and performance
5
Sustainable development for the benefit of future generations
Like the Guidelines for Emerging Producers, these governance principles were driven
and shaped by discussions between producers. See the Chatham House Document:
http://www.chathamhouse.org/publications/papers/view/108469
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Overview: The guidelines for emerging producers
• Structured around eight key objectives for the petroleum
sector in an emerging producer context
• Review common challenges faced and offer policy oriented
recommendations
• All objectives may not be a priority for every country
Objectives
Available policy
options
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Fit with the
national context
(resources,
capacity)
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Presentation Map
This is an interactive presentation. Please click on the red boxes, icons and text throughout to navigate
to specific topics.
Strategy
Objective 1: Elaborate a strategic vision for the sector
Guidelines for good
governance
Objective 2: Attract the most qualified investor
Licensing
Objective 3: Maximize economic returns to the state
Engaging with Society
Objective 4: Earn public trust & manage public
expectations
Objective 5: Increase local content
Roles and Capacity
Objective 6: Develop capable national organisations
Objective 7: Increase accountability
Accountability
Objective 8: Safeguard the environment
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Objective 1:
Elaborate a
strategic
vision for
the sector
Recommendations on elaborating a strategic vision
Recommendations on balancing competing objectives
Recommendations for political leadership
Recommendations for implementing national development plans
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Recommendations on elaborating a strategic vision for the sector
• It is important that government policy has a clear vision for the
development of the country
• The vision for the petroleum sector should then flow from these
priorities
• Reassess vision whenever market or resource base changes
• Identify which parties are involved in achieving those objectives
• Be strategic about priority sectors for local development. As a first
step produce careful and honest analysis of resource base,
capabilities and the market
• Integrate petroleum sector objectives to those of national vision
• Monitor progress to ensure implementation
Objective 1
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Challenge 1: Balancing competing objectives in pursuing a
national vision
How best
to leverage
resources?
Example of trade-offs involved in national vision
centered on using oil/gas development
Stimulates
local
industry
Possible
Dutch
disease
National
participation
in sector
↑ energy
consumption
Recommendations on balancing competing objectives
Objective 1
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Recommendations on balancing competing objectives
• Evaluate the scale of resources in relation to the rest of economy Are they large enough to transform the economy?
• Ask, ‘What kind of producer should we be?’
• Look carefully at risks associated with each type of vision
• Goals must be prioritized; it may not be possible to achieve all at
once
• Domestic energy use should be considered strategically at an early
stage to avoid becoming locked into unsustainable consumption
patterns.
Objective 1
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Challenge 2: Lack of political leadership
Key Problem
Lack of political will
‘We have the necessary policies and regulations in place, but
we have no leadership, no vision. Should we proceed to
develop our sector without it?’
Recommendations for driving a national vision without leadership
Objective 1
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Recommendations for political leadership
• Stakeholders (e.g. technical experts, petroleum and nonpetroleum professional associations, and civil society) can
raise public awareness and create political pressure for key
decisions
But there are limits to what a grassroots initiative and public
debate can do when leadership is missing…
Objective 1
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Challenge 3: Implementing national development plans
Changing
development
needs
Institutions
at crossed
purpose
Corruption
Electoral
cycles
Implementation
Implementation
can be derailed
by several
factors
Limited
capacities
Recommendations for implementing national development plans
Objective 1
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Recommendations for implementing national plans
• Link country’s oil development strategy to national vision
formed through cross-party consensus
• Involve civil-society groups as a means of increasing
accountability and sharpening focus on long-term issues
• Create an institution to oversee implementation
• Enact legislation to coordinate institutions
Objective 1
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Objective 2:
Attract the
most qualified
investors for
the long run
Recommendations to attract well-established companies
Recommendations for the licensing format
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Challenge 1: Attracting qualified companies to frontier areas
Political Stability
Geological data/Prospectivity
Sanctions/war
Poor knowledge of the
geological basin
Low price
environment
a challenge!
Attractive to larger, more
established companies
Attractive to smaller
and less qualified
companies
Recommendations to attract qualified companies to frontier areas
Objective 2
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Recommendations to attract qualified companies (1/2)
When geological or political risk make your country less attractive:
• Invest in collecting geological data before licensing to understand
value of resources and reduce investors risk
• In a low price environment, flesh out data to decrease risk for the
investor
• Explore different ways of funding data collection
• Educate licensing entity on industry to better target data marketing
• Establish strong and transparent prequalification criteria (technical,
financial, organisational) to help select companies with capacity to
carry out exploration work
• Relinquishment policies and shorter renewal periods can discourage
companies from sitting on acreage (careful to stay flexible during
price slump)
Objective 2
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Recommendations to attract qualified companies (2/2)
• Don’t overly penalize the trade (farm out) of a company’s interest
in a license. But do protect state interests
• Provisions for capital gains (high rates discourage explorers)
• Specify in the Petroleum Law that government approval is
required for any transfer of stakes or licenses, to avoid entry of
under-qualified companies
• Disclose bidding information to the public to deter corrupt
bidders
• Consult with reputable firms/organisations on the design,
marketing and evaluation of bid round programme
• Publicise the model PSC prior to final publication and invite
stakeholder comments
Objective 2
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Challenge 2: Frontier area is not attractive enough to hold an auction
Benefits of auctions (open bid rounds):
1. Competition between bidders generates
the best terms for the government and
sets the market value of the acreage
2. Auctions reduce knowledge asymmetry
problems between the state and the
investor, in contrast to direct negotiations
But only
suitable when
high investor
interest
Recommendations for the licensing format
Objective 2
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Recommendations for the licensing format
• When investor interest allows it, use transparent, open
bidding rounds to create real competition
• If insufficient interest avoid open bid formats, rely instead on
first-come-first-served licensing
• For governments with low knowledge of the sector, engage
with expertise to balance the knowledge equation during
negotiations
• Use transparent selection criteria in both bid rounds and
direct negotiations
• If under depressed market conditions, countries with frontier
acreage should consider whether to a hold new awards at all
• Shift to auction when basin becomes more attractive
*Consider the open file system
Objective 2
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What is an open file system?
The Open File System is a cross between auctioning and
first-come-first-served: a 90 day window is used by the
government to invite bids to compete for an application
that has just been made by a company.
Back
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Objective 3:
Maximize
economic
returns to the
state through
licensing
Recommendations for designing appropriate tax structures
Recommendations for dealing with knowledge asymmetries in negotiations
Recommendations for changing investment terms
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Challenge 1: Designing appropriate tax structures
In designing fiscal terms, producers must balance early
revenues and long-term benefits, in line with the national
vision whilst maintaining investor interest.
Investors
Priorities
want
to ease
laid out
in
fiscal
burden
national
under
low
vision?
price
environment
Direct
tax
revenues
Local
content
Up-front
cash flows
Long term
cash flows
Investors
want lower
fiscal burden
during price
slump
Recommendations for designing appropriate tax structures
Objective 3
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Recommendations for designing fiscal terms that provide
early revenues and ensure long-term benefits (1/2)
Fiscal
terms
To reduce risk for investors
include progressive, flexible
fiscal elements:
- Profit based production sharing
- Higher rates kick in when
project becomes very
profitable – means
government captures
windfall, but until then lower
rates apply.
To bring revenues from first
days of production include:
- Royalties (can vary, with lower
royalties for frontier or high cost
fields)
- Cost recovery limits in production
sharing contracts (align fiscal
regime with different cost profiles,
e.g. deep water)
Objective 3
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Recommendations for designing fiscal terms that provide
early revenues and ensure long-term benefits (2/2)
• Keep the tax structure simple
• Harmonize tax code and petroleum law
• Define tax obligations and other imposition criteria in the tax
codes, not in the contracts (except negotiable fiscal elements)
• Before licensing make fair provisions for taxing capital gains
by early entrants that later sell out
• To attract exploration capital, attach more weighting to work
programmes than signature bonuses
Objective 3
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Challenge 2: Knowledge asymmetries in negotiations
Government negotiators may have insufficient knowledge of
the costs and technical requirements of oil and gas sector to
get optimal terms in negotiations:
‘Timor-Leste’s regulatory National Petroleum Authority has about 100 staff
(most of whom graduated from university within the last five years and
have never worked anywhere else) and a total annual budget of less than
$10 million. ENI, which is only one of the companies which they regulate,
has about 80,000 personnel and annual expenditures of more than
$90,000 million. How can a balance be achieved between such unequal
entities?’
- Charlie Scheiner at the Timorese NGO La’o Hamutuk
Recommendations for dealing with knowledge asymmetries in negotiations
Objective 3
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Recommendations to overcome knowledge asymmetries in
negotiations
• Get help: when in direct negotiations, governments should work
with consultants or technical advisers to support the state in
negotiations
• Ensure external support is tailored to the national context in
order to avoid ‘cookie cutter’ solutions
• Keep it simple: move as many fiscal elements as possible into
laws and regulations, to limit the items to be negotiated
• Use a production-sharing contract with minimal biddable items
• Include capacity-building requirements in licensing agreements
• Help your neighbor: consider making contracts transparent
Objective 3
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Challenge 3: Fairness in changing investment terms
Our group debated the legitimacy of renegotiating an existing
agreement. A near consensus emerged that:
• Renegotiation was sometimes necessary in order to maintain a
long-term partnership between oil companies and governments
• Unilateral change drives business away
We discussed one avenue for renegotiation: including a stabilization
clause in the contract from the outset, allowing renegotiation when
triggers are activated.
Recommendations for changing investment terms
Objective 3
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Recommendations to changing investment terms
• Governments should design progressive fiscal terms at the
outset, to capture maximum windfalls as the context evolves
• Respect existing contracts. First remedy is to change terms of
future contracts
• When designing contracts with a stabilization clause,
government should ensure that it’s:
•
•
•
•
•
Clear
Specific on terms subject to renegotiation
Specific on triggers for renegotiation
Specific on the baseline for renegotiation
Specific on the process for renegotiation
Questions for
future
workshops
Objective 3
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Changing terms without scaring off investors
Questions for further discussion:
 What threshold (e.g. economic unfairness or inappropriate
environmental provisions) needs to be met to justify
renegotiation?
 What good practice mechanisms can governments follow for
renegotiation of existing contracts?
The following recommendations will be considered:
Before opting to renegotiate an existing contract, a government
should:
• Carefully analyse the prospective economic gains.
• Analyse the trade-offs or risks.
• Communicate carefully and clearly with companies currently
present in-country, prospective new investors, and citizens.
Back
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Objective 4:
Earn and retain
public trust and
manage public
expectations
Recommendations for meaningful community engagement
Recommendations for overcoming lack of trust
Recommendations for moderating public expectations after discoveries
Recommendations for fair redistribution of wealth
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Challenge 1: Arriving at meaningful community engagement
Misunderstandings between communities and government or
industry are common.
Communities want to be consulted, and influence decisionmaking.
Governments face the challenge of mediating
between the competing interests of communities
surrounding the project site and other interest
groups in the country.
One-way
communication
≠
Engagement
Recommendations for meaningful community engagement
Objective 4
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Recommendations for meaningful community engagement
• Communicate early and regularly
• Have a clear sense of petroleum sector’s role in the broader
national vision so can align local and national concerns
• Avoid symbolic engagement. Really listen to the core values
of the community
• Oil companies should employ specialized staff for
community engagement and increase communication with
the public
• Develop a strategy for community engagement, clarifying
who will be heard and how competing interests will be
balanced
• Draw on trusted messengers
Questions for
future workshops
Objective 4
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Meaningful Community Engagement
Community engagement would have the industry (and government)
move beyond one-way communication and community
consultations to a higher standard requiring Free, Prior and
Informed Consent (FPIC).
FPIC is emerging as a principle of best practice for sustainable
development and a risk management tool, used to reduce social
conflict and increase project legitimacy in the eyes of all
stakeholders and rights-holders.
Questions for discussion
 What are the benefits and challenges of higher standards of
community consultation? Which communities would need to
give FPIC? Is this applicable only for onshore projects?
Objective 4
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Challenge 2: Overcoming lack of trust
Trust is a key ingredient in community engagement. But it is lacking
in post-conflict situations and where corruption has been endemic.
Marginalized communities may not trust the messages that are being
conveyed.
‘It is a difficult task to meet someone who doesn’t trust you. But you
can’t escape this responsibility. And besides, it will improve, and
trust will be built as you meet’.
- Ernest Rubondo, Ag. Director of
Uganda’s Petroleum Directorate
Recommendations for overcoming lack of trust
Objective 4
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Recommendations for overcoming lack of trust
• Government should meet with concerned communities in
person (not only speak from the capital)
• Be aware of potential (mis)perceptions by communities of
interests and intentions
• Help communities access information about the project
• Communicate negative impacts and mitigation measures
• Disclose information related to licensing and tendering
processes
Objective 4
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Challenge 3: Moderate public expectations after discoveries
Promising transformational impacts that cannot be delivered
creates public mistrust of government policies for the sector,
and of the industry more broadly.
‘People wonder: Where is the impact? Where are the results?’
- A participant at the 2012 Discussion Group
Recommendations for moderating public expectations after discoveries
Objective 4
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Recommendations for moderating public expectations after
discoveries
• Governments and industry should manage expectations before and after
discoveries by providing realistic information concerning:
The scale and speed of monetising new discoveries
The potential job creation
Both drywells and successes
Explaining the difference between a discovery/ commercially proven
discovery
• General petroleum project cycles
• Up-to-date information and assumptions about project development
and potential revenue generation
• Changes to IOC and NOC plans and government expenditure
•
•
•
•
• Governments and politicians should ground the communication about
discoveries in the strategic national vision
• Government NOC websites should be used to provide this information
Objective 4
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Challenge 3: Fair distribution of wealth among producing and non-producing
regions
• At stake are issues of fairness, a sense of ownership, and
compensation for local negative impacts from the development of
the resource
• But instituting a revenue-sharing system is no guarantee of effective
or accountable management of natural resources. It can become a
flash point for additional conflict. In some places it has made public
financial management worse, via white elephant projects, localized
corruption, or local wage inflation and disruption of other sectors
Recommendations for a fair distribution of wealth
Objective 4
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Recommendations for fair redistribution of wealth to producing
and non-producing regions
• Governments should manage expectations – especially of
communities near the projects, including on revenuesharing systems, benefits and risks
• Be clear about the goals the decentralisation system is
meant to address (and how to prioritize these goals)
• Assess the capacity for expenditure of levels of
government before allocating revenues to them
• Ensure accountability mechanisms are in place at all
levels of governments
Objective 4
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Objective 5:
Increase local
content and
benefits to the
broader
economy
Recommendations for designing high impact local content policies
Recommendations for setting realistic local content targets
Recommendations for getting foreign oil companies to invest in local
content and national development when resources are uncertain
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Challenge 1: Designing high impact local content policies
Fostering linkages to the petroleum sector in an economy with low levels of
industrialization is a challenge – especially with reserves lifespan of 10-20 years
Low oil prices means foreign oil companies are focused on cost reductions, and
will be reluctant to make significant commitments to local content development
Capital intensive,
high-tech
petroleum sector
Other sectors of a
developing
economy
Recommendations for designing high impact local content policies
Objective 5
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Recommendations for designing high impact local content
policies
Governments should:
• Develop local content objectives consistent with priority sectors
for development (as per national vision)
• Identify which parties are involved in achieving those objectives
• Identify the sector’s expected needs, beginning with a careful
analysis of the resource base
• Enlist foreign oil company operators to provide early data on
their needs and share data with learning institutions and local
suppliers
• Assess local capabilities, supplies, infrastructure, and financial
services, and apply specific targets for each
• Create value beyond a specific project (e.g. transferable skills)
• Map out a skills development plan based on forward needs
assessment
• Include national content requirement for the goods and services
that the NOC buys (in line with national capacity)
• Adopt a simple measurement and reporting system
Objective 5
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Challenge 2: Setting realistic local content targets when domestic
industrial or human capacity is low
Governments often struggle to set realistic local content
targets when domestic industrial or human capacity is low
Recommendations on setting realistic local content targets
Objective 5
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Recommendations for setting realistic local content targets
• Governments should avoid mimicking other countries’ local
content policies; develop thorough understanding of the local
context in order to define realistic and achievable targets
• Governments should require investors to develop capacity.
Starting point is local sourcing of simple on-site services.
• Governments should avoid turnkey projects run by foreign
staff
• Governments should support the foreign oil companies’ efforts
by linking local content policy in the oil sector to the education
strategy and building the kind of workforce that is able to
respond to the country’s future needs.
Questions for
future
workshops
Objective 5
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Setting realistic local content targets
Some governments require foreign companies to partner
with or contract to companies that are domestically based.
In countries where local capacity is low, such rules can
facilitate the creation of shell companies that benefit
financially without actually contributing to or learning from
the project operations.
Questions for further discussion:
 What can governments do to remedy this?
Back
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Challenge 3: Getting foreign oil companies to invest in national development when
resources are uncertain
• Local content is often more expensive
• Companies may be reluctant to invest substantially in capacitybuilding if the resource is small or uncertain
• Government’s capacity-building can be recovered indirectly,
because the capacity built will be available to other sectors of
the local economy
• Companies will expect to be compensated for the higher costs
of hiring or sourcing locally
Recommendations for getting foreign oil companies to invest
Objective 5
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Recommendations for getting foreign oil companies to invest in
national development when resources are uncertain
• Focus on building local capacity in goods and services for
which the petroleum sector has an immediate need
• Prioritize ‘dual use’ goods and services that can be utilized by
other sectors in the long term
• Governments should collaborate with companies to develop
training and hiring programs (at licensing phase)
• Local capacity development commitments should be part of
companies’ development plan
Objective 5
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Objective 6:
Build capable
national
organizations
Recommendations for coordinating foreign advisory services
Recommendations for speeding up capacity in oversight
Recommendations for building operator capabilities in the NOC
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Challenge 1: Coordinating (and getting the most out of) foreign technical advisory
services
Oil and gas hotspots attract foreign donors, technical advisers and
consultants that offer guidance and capacity building to help prepare
the country for production.
But some governments receive too much unsolicited advice. These
problems were highlighted:
• A burden on the senior officials’ time
• Lack of coordination of advice between national institutions and
between advisors
• Lack of incentives for advisors to coordinate
• Governments may not be getting the advice they need
Recommendations coordinating foreign advisory services
Objective 6
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Recommendations for coordinating (and getting the most
out of it) foreign technical advisory services
• Advisers should give governments the space and time to think
through their vision for the sector and formulate needs
• Governments should outline needs in a Terms of Reference, or
a roadmap strategy, and require advisers to submit bids
outlining their capacity
• Government should speak with one voice and coordinate
assistance nationally
• Advisers should adapt recommendations to national context
(as per Guidelines)
Objective 6
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Challenge 2: Speeding up capacity-building in oversight functions
Bodies with responsibility for governing the sector require financial
resources, information, human capacity, and supporting processes
Government with limited resources must determine which functions
and which actors to prioritize in capacity building efforts
“In a small island developing country with relatively limited
resources, it would be a mistake to duplicate tasks”
–Eddie Belle,
CEO of PetroSeychelles
Recommendations for speeding up capacity in oversight
Objective 6
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Recommendations for speeding up capacity-building in
oversight functions (1/3)
• Low capacity?
• Concentrate responsibilities in either the ministry of energy or the
NOC
• Early stage?
• Build capacity at the revenue authority in order to establish effective tax
policies
• Allocate data, licensing and promotion authorities to a single entity
• After discoveries?
•
Focus on capacity to audit and monitor operations
• Big discoveries?
• Boost administrative capabilities and petroleum-sector knowledge in
government
• NOC wants to be an operator? Transfer its regulatory responsibilities to
the government to avoid a conflict of interest
Objective 6
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Recommendations for speeding up capacity-building in
oversight functions (2/3)
When entrusting NOC with a *Governance Role
•
•
•
•
•
Ensure the role has clear scope and limits
Clarify when state will take back responsibilities (ex., triggers)
NOC must build skills to be a capable regulator
Government must provide it with explicit financial model
Government must invest in own auditing capacity and demand
strong reporting and accounting standards in the NOC
Objective 6
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What are ‘governance roles’ ?
Potential governance roles
Advising government on
oversight of sector
Monitoring operators
Managing data
Promotion of resources
Negotiation of licenses
Back
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Recommendations for speeding up capacity-building in
oversight functions (3/3)
When establish a regulatory agency:
• Get support from external technical assistance when state
capacity is low
• Must have strong political will
• Create one agency to take on data management, licensing,
devising regulations, monitoring operations and technical review
of development proposals – especially when capacity is low and
the resources uncertain
• When state capacity, establish specialized units at the
appropriate ministries for environmental monitoring and tax
collection
• Pay regulators well
Objective 6
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Challenge 3: Is the NOC’s mandate clear and is it affordable?
There is a growing interest in national participation, particularly
through license stakes and an operational role for the NOC
But the government should first consider whether it can afford an
NOC that is an operator .
Upstream
operator
Minority stake
holder
Recommendations for the setting the NOC’s role
Objective 6
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What steps are involved in developing operational capabilities?
Overseas
expansion
Responsibility
for minor field
Passive
minority equity
partner with
foreign oil
companies
Responsibility
for major,
complex field
Contributing
minority equity
partner (NOC
raises finance)
An operator has legal authority to explore for and produce petroleum
resources in a given field. It must be able to select the appropriate technology,
propose a development plan, raise finance, manage a large project, and assess
geological and financial risks.
Back
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Recommendations for setting the NOC’s role
• Review resource base, available technical and financial resources and
task NOC with role it can realistically play and state can afford
• Ensure the NOC strategy is robust in a changing market
• Government should direct any NOC growth strategy
• Wait to make significant investments in developing an NOC’s
operational capabilities until discoveries establish a reserves lifespan of
at least 15 years
• Until this reserve base is established, train nationals to raise general
human and state capacity. Provide the NOC with only a limited budget
for building operational skills
• Be strategic about capacity building
• Approve an explicit financial model for the NOC and introduce strong
accounting and reporting standards
15 years+ expected
production
Operator
ambitions
Objective 6
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Objective 7:
Increase
Accountability
Policy Option: Take regulatory responsibilities away from the NOC
Recommendations for overcoming entrenched interests in a reform
Recommendations for weeding out corruption
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Policy option: Taking regulatory responsibilities from the NOC
• To increase accountability, governments can introduce more
checks and balances into the system
• This can mean taking some or all governance roles away from
the NOC and creating an independent regulatory agency
Challenge: Reforms that upset entrenched interests are
likely to be opposed
Recommendations for overcoming entrenched interests
Objective 7
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Recommendations for overcoming entrenched interests in
a reform
• Early stage: start with one credible body to regulate
• Over time build capacity elsewhere to create checks
• Regulatory functions should be established from the beginning
in functionally distinct units to allow easier spin off when
reform comes
• Require secondment of old regulator staff to new agency
• Establish a credible, legitimate group to direct the pace and
shape of incremental reform
Objective 7
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Challenge: Weeding out corruption
International regulation against bribery and transparency
measures have made a dent on corrupt practices, but it
remains difficult to eliminate corruption where it has
thrived.
Recommendations for weeding out corruption
Objective 7
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Recommendations for weeding out corruption
• Governments and oil companies should view corruption as an
enormously costly problem
• Professionalism and transparency are important antidotes to
corruption
• Transparency is especially needed in transactions and procurement
• Independent and competent judiciary and other state institutions
ensure checks and balances
• Engage with civil society groups by informing them and enabling
them to demand higher standards of performance
• Oil companies and NOCs should implement anti-corruption
compliance programmes
Objective 7
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Objective 8:
Safeguard the
environment
Recommendations for minimizing operational risk
Recommendations to prevent flaring
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Challenge: Regulating to minimize operational risk in a low capacity setting
• Risks are high
• Regulating requires highly specialized knowledge
• In practice many governments must rely on foreign oil company
operators to self-regulate
“We are just lucky that nothing has happened.”
- A participant at the 2014 Discussion Group meeting
Recommendations for minimizing operational risk
Objective 8
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Recommendations to minimize operational risk
• Adopt goals-based performance-focused regulatory regime (creates
the right incentives)
• Not the check-box rules-based regime
• Invest in capacity building to understand technical risks
• Until have the capacity, access it by other means:
• Network of regulators
• Share technical experts with neighbours
• Ask oil companies for their advice
• Ask consultants for support
• Draw on international standards to write your regulations
• Don’t forget provisions for decommissioning
Objective 8
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Challenge 2: Prevention of flaring
Flaring
when gas found in oil (or sometimes
condensate) reservoirs is not used by
the operator
• Costly in terms of environmental damage and missed
economic opportunity
• Difficult to avoid flaring once production begins without the
right legal framework already in place
• Anticipating and preventing flaring at an early stage
of development is key!
Questions for
future
workshops
Objective 8
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Prevention of flaring
Questions for further discussion:
 When is the right time to start planning around the
necessary infrastructure to use associated gas?
 How stringent should regulations be on flaring without
creating disincentive for investors?
Back
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Thank you
For the full text of the Guidelines for Good Governance in Emerging Oil and Gas
Producers (3rd Edition, 2016) please visit the Chatham House website.
To discuss how your organisation can use the Guidelines as a roadmap for preparing the
country for oil and gas, a checklist for benchmarking purposes, or a training or
discussion tool, please contact Dr Valerie Marcel, [email protected]
We would also like to hear how you used the Guidelines presentation and adapted its
content to your national context.
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