By Kiana Wilburg
When entering negotiations with oil companies that have a strong personality like ExxonMobil, there are several tactics which governments can employ to avoid being swayed or easily influenced, says Energy and Strategy Advisor, Anthony Paul.
During a recent interview with the Columbia Center on Sustainable Investment (CCSI), Paul emphatically stated that governments must have their own contract models which honour the nation’s laws. He warned against reliance on those provided by oil companies.
Further to this, the Local Content Expert cautioned that there must be accountability throughout the decision chain for the oil sector, or else it opens a country up to corruption and poor governance.
He said, too, that another tactic governments can use to resist being unduly influenced is by fixing fiscal terms in law so as to prevent Ministers from changing the terms, or to do so only under prescribed conditions and in a transparent manner.
In addition, Paul who is currently supporting countries new to extractives industries, said that another effective tactic to get the most of the oil deposit and to prevent optimization of its exploitation from being subject to one company’s business strategy, is to require joint ventures.
In this regard, the Petroleum Consultant recalled that in the 1990’s, Trinidad had put a bid out for an oil block onshore. Its geology was very attractive; many majors submitted bids, but ExxonMobil emerged the victor.
The Industry Expert said that Trinidad, however, imposed Total and Chevron to partner with Exxon, while keeping itself as the operator. Paul said that this was beneficial to the country as it enabled technical competition and a variety of views and approaches between partners, and it yielded the best exploration methods.
Further to this, Paul contended that joint ventures (JVs) generally enable governments to put in place an additional layer of control and audit, as each party keeps an eye on the operator. For cost allocation purposes, Paul explained that a JV will always do internal audits on each company’s invoices before invoices are submitted to the government; whereas, when there is no JV, the invoice will go straight to the government which often has weaker auditing capacities.
The Industry Expert said one must bear in mind that those multinational companies make deals across assets and borders. So, the government may not always have a line of sight of value transfer, the official stated.
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