Visibly Transparent

06/12/2014

On a recent trip to Nigeria, one of the “protocol” agents asked me what I did and, since I was working in the oil and gas industry, how this was going to help Nigeria? When I asked what he meant by “help Nigeria,” his answer was all about accountability and transparency of the oil and gas revenues and volumes.

There is a key initiative in this industry related to exactly this perspective – the Extractive Industries Transparency Initiative (EITI). This organisation started in 2003, became a legal entity in 2009 and the EITI Standard was published in 2013. The aim of the initiative is clear – to enable the wealth from a country’s natural resources to benefit the citizens through a high degree of accountability and also to promote at least a minimum level of transparency in the reporting of revenues and receipts. It is also aimed to educate normal people on what questions to ask to understand more about what is going on within large corporations.

In 2011 Transparency International (TI), which is a global civil society organisation promoting the fight against corruption and the Revenue Watch Institute (RWI), released a report on “Promoting Revenue Transparency in Oil & Gas Companies,” which asks questions of 44 major oil and gas producers in 30 countries and specifically focusses on disclosure and country level disclosure related to both the reserves reporting and parts of the EITI. This report makes many interesting findings and highlights the performance of companies, and countries, at a high level. Interestingly, it shows that the transparency of major Independent Operating Companies (IOCs) is typically significantly higher than National Oil Companies (NOCs) – which, given the number and increasing reach of the IOCs, is good for the industry.

The question it raises, though, is why are the IOCs typically providing better visibility than the NOCs – and what can be done to improve the reputation of the industry where the NOCs are more prevalent? IOCs are typically adhering to requirements such as Sarbanes Oxley and have the technology and infrastructure to support auditable data flow through their organisations. Accountability on production volumes, reserve volumes and revenues has meant that the technology systems promote “one version of the truth” – production figures are verified and approved and there is auditable signoff on the volumes of production that a company moves from its 1P reserves to its production volumes. Shareholders and the valuation of a company depend upon these figures and it seems that standards like the Petroleum Reserves Management System (PRMS) are promoting clear provenance on signatories and approvers, which aids transparency.

For the NOCs that do not have to comply with all of the same requirements as the IOCs, the question then is – what will drive a change toward systems that promote the alignment to the EITI aims? The simple answer is that baby steps have to be made through the simplification of complexities and systems that have evolved rather than been designed. The adoption of technology and computing/mobile devices will only start if they prove to reduce cost, manpower, time or increase operational performance. Once this journey is started, transparency is something that will slowly start to occur. The justification for the commencement of the journey will be the hardest step, closely followed by the change management to ensure that the journey continues.

As for the protocol agent and his transparency request – he demanded a payment for his services that was based on “what you think I deserve.” When I did offer him a payment, he argued about the value of his services, demanding more money. Perhaps a clear demonstration that transparency is easy to talk about but not always something easy to achieve?

About the Author
Andy Coward is Senior Director, Business Solutions at P2 Energy Solutions.

www.p2energysolutions.com

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