Emerging producers offered guidelines for governance

July 6, 2015
Like most worthy endeavors, governing oil and gas activity at the national level is easier said than done-especially where oil and gas never before have been produced.

Like most worthy endeavors, governing oil and gas activity at the national level is easier said than done-especially where oil and gas never before have been produced.

Chatham House, The Royal Institute of International Affairs, of London, offers help in a research paper, "Guidelines for Governance in Emerging Oil and Gas Producers," compiled under auspices of the New Petroleum Producers Discussion Group.

The document describes these objectives and elaborations, summarized mercilessly here:

• Attract the most qualified investor for the long run. Governments should invest in geological data before licensing, set prequalification criteria tough and transparent enough to preclude corrupt bidders, and adopt laws covering transfers of license interests.

• Maximize economic returns to the state through licensing. Fiscal terms should provide the state early revenue for urgent development while ensuring long-term economic benefits. Taxes should be simple and defined in tax codes rather than contracts.

• Earn and retain public trust, and manage public expectations. "To avoid misunderstandings and overcome mistrust, governments and industry should engage meaningfully with communities," the document says. "This involves real listening."

• Increase local content and benefits to the broader economy. Laws should require purchases by foreign and national oil companies of domestic goods and services to the extent possible or at least provide timetables for shifting from foreign to domestic sourcing.

• Build capable national organizations to participate in and oversee the development of the resources. Governments should seek technical advice for capacity-building yet avoid becoming overloaded with unsolicited help. The roles of national oil companies should be shaped strategically and in accordance with discovery sizes and likely production lives.

• Increase accountability. Early in resource development, "one credible body" should manage all aspects of work. Checks and balances can be introduced over time as capacity builds in other branches of government. But mechanisms for public accountability, including audits of agencies and state-owned companies, should be introduced "immediately."

The guidelines fill 44 pages. They're easy to find at www.chathamhouse.org. History suggests implementing them is more difficult.