Guidelines for Good Governance in Emerging Oil and Gas Producers
Chatham House publication, edited by Valérie Marcel
Over the last few years, significant new oil and gas exploration reserves have been discovered in East and West Africa, as well as the Eastern Mediterranean, the Caribbean and the Asia- Pacific region. These discoveries have very quickly added several new countries to the ranks of the world's oil- and gas-producing nations. These emerging oil and gas producers have shown a strong interest in advice on governance. They are keen to avoid the mistakes that have led to accountability failures in other, more established, producing countries.
While emerging oil and gas producers can learn from the experiences of leading national operators worldwide, capacity constraints often prevent them from implementing international 'best practice'. New or developing producers have limited experience of managing petroleum resources, and many must make petroleum policy decisions without a clear view of the size of their resource base.
Thus, the purpose of these Guidelines is to help emerging producers think critically about the policy options that are available and would be most effective during the first steps of exploration and development, or during a restructuring of the country's oil and gas sector. Instead of encouraging emerging producers to pursue 'best practice' standards, it may be more helpful to advise them to aim for 'more appropriate practice', which is in tune with the realities of the national context, 'more effective practice', which brings about rapid results in a context of urgent need, or 'better practice', which improves governance processes through aspirational, but achievable, milestones.
The Guidelines offer recommendations for emerging producers, which are drawn from a workshop that brought together new and established producers. These recommendations address the following issues:
- How do emerging producers attract established companies to a frontier area? What type of licensing and contracts is most appropriate in these cases?
- Emerging producers face the challenge of winning the trust of the public, especially in post- conflict situations and where corruption has been endemic. And once discoveries have been made, it can be difficult to moderate public expectations. Public consultations and education are keys to addressing this issue.
- Emerging producers want to maximize local content and benefits to the broader economy, but they have to set realistic local content targets when domestic industrial or human capacity is low.
- In emerging oil hotspots, there is a growing interest in promoting national participation, largely through stakes for countries' NOCs. From Ghana to Timor-Leste, many new or prospective oil producers are establishing or reforming NOCs. The key questions that emerge in this context are: 1) whether and when it is appropriate to create an NOC; and 2) what role the NOC (and other governing bodies) should have. In other words, can the state afford to build up an NOC that's an operator? Does it have the capacity to build up an independent regulator?
- Producers at an early stage of development of their resource base can start with one credible body that is responsible for all administrative and regulatory functions. Over time, governments will need to build up capacity elsewhere and introduce checks and balance into the system.