Guidelines for Good Governance in Emerging Oil and

slide1. 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.<br>
slide2. Chatham House | The Royal Institute of International Affairs 2 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<br>
slide3. Chatham House | The Royal Institute of International Affairs 3 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<br>
slide4. Chatham House | The Royal Institute of International Affairs 4 Recommendations for incremental governance improvement Potential policy objectives Assessment and prioritization National vision
Role for energy sector Maximise economic returns to the state Earn public trust & manage public expectations Increase local content Increase accountability Develop capable national organisations Attract the most qualified investor Elaborate a strategic vision for the sector Safeguard the environment<br>
slide5. Chatham House | The Royal Institute of International Affairs 5 Aim for these 5 principles of good governance 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<br>
slide6. 6 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 Chatham House | The Royal Institute of International Affairs<br>
slide7. Chatham House | The Royal Institute of International Affairs 7 Presentation Map This is an interactive presentation. Please click on the red boxes, icons and text throughout to navigate to specific topics. Objective 8: Safeguard the environment Objective 1: Elaborate a strategic vision for the sector Strategy<br>
slide8. Recommendations on elaborating a strategic vision Recommendations for political leadership Recommendations for implementing national development plans 8 Recommendations on balancing competing objectives Chatham House | The Royal Institute of International Affairs<br>
slide9. Chatham House | The Royal Institute of International Affairs 9 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<br>
slide10. Recommendations on balancing competing objectives Challenge 1: Balancing competing objectives in pursuing a national vision Example of trade-offs involved in national vision centered on using oil/gas development How best to leverage resources? Chatham House | The Royal Institute of International Affairs 10<br>
slide11. Chatham House | The Royal Institute of International Affairs 11 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.<br>
slide12. Recommendations for driving a national vision without leadership 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?’ 12 Chatham House | The Royal Institute of International Affairs<br>
slide13. Chatham House | The Royal Institute of International Affairs 13 Recommendations for political leadership Stakeholders (e.g. technical experts, petroleum and non-petroleum 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…<br>
slide14. Recommendations for implementing national development plans Challenge 3: Implementing national development plans Implementation can be derailed by several factors 14 Chatham House | The Royal Institute of International Affairs<br>
slide15. Chatham House | The Royal Institute of International Affairs 15 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<br>
slide16. Recommendations to attract well-established companies Recommendations for the licensing format 16 Chatham House | The Royal Institute of International Affairs<br>
slide17. Political Stability
Geological data/Prospectivity Sanctions/war
Poor knowledge of the geological basin Attractive to larger, more established companies Attractive to smaller and less qualified companies Recommendations to attract qualified companies to frontier areas Challenge 1: Attracting qualified companies to frontier areas Low price environment a challenge! 17 Chatham House | The Royal Institute of International Affairs<br>
slide18. Chatham House | The Royal Institute of International Affairs 18 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)<br>
slide19. Chatham House | The Royal Institute of International Affairs 19 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<br>
slide20. Challenge 2: Frontier area is not attractive enough to hold an auction Recommendations for the licensing format 20 Chatham House | The Royal Institute of International Affairs<br>
slide21. Chatham House | The Royal Institute of International Affairs 21 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<br>
slide22. Chatham House | The Royal Institute of International Affairs 22 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.<br>
slide23. Recommendations for changing investment terms Recommendations for dealing with knowledge asymmetries in negotiations Recommendations for designing appropriate tax structures 23 Chatham House | The Royal Institute of International Affairs<br>
slide24. 24 In designing fiscal terms, producers must balance early revenues and long-term benefits, in line with the national vision whilst maintaining investor interest. Recommendations for designing appropriate tax structures Challenge 1: Designing appropriate tax structures Investors want to ease fiscal burden under low price environment Chatham House | The Royal Institute of International Affairs<br>
slide25. Chatham House | The Royal Institute of International Affairs 25 Recommendations for designing fiscal terms that provide early revenues and ensure long-term benefits (1/2)<br>
slide26. Chatham House | The Royal Institute of International Affairs 26 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<br>
slide27. 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 27 Chatham House | The Royal Institute of International Affairs<br>
slide28. Chatham House | The Royal Institute of International Affairs 28 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<br>
slide29. 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 29 Chatham House | The Royal Institute of International Affairs<br>
slide30. Chatham House | The Royal Institute of International Affairs 30 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<br>
slide31. Chatham House | The Royal Institute of International Affairs 31 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.<br>
slide32. Recommendations for meaningful community engagement Recommendations for overcoming lack of trust Recommendations for moderating public expectations after discoveries Recommendations for fair redistribution of wealth 32 Chatham House | The Royal Institute of International Affairs<br>
slide33. Challenge 1: Arriving at meaningful community engagement Misunderstandings between communities and government or industry are common.

Communities want to be consulted, and influence decision-making. Recommendations for meaningful community engagement Chatham House | The Royal Institute of International Affairs 33 Governments face the challenge of mediating between the competing interests of communities surrounding the project site and other interest groups in the country.<br>
slide34. Chatham House | The Royal Institute of International Affairs 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 34<br>
slide35. Chatham House | The Royal Institute of International Affairs 35 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?<br>
slide36. 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 36 Chatham House | The Royal Institute of International Affairs<br>
slide37. Chatham House | The Royal Institute of International Affairs 37 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<br>
slide38. 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 38 Chatham House | The Royal Institute of International Affairs<br>
slide39. Chatham House | The Royal Institute of International Affairs 39 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<br>
slide40. 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 Challenge 3: Fair distribution of wealth among producing and non-producing regions Recommendations for a fair distribution of wealth Chatham House | The Royal Institute of International Affairs 40<br>
slide41. Chatham House | The Royal Institute of International Affairs 41 Recommendations for fair redistribution of wealth to producing and non-producing regions Governments should manage expectations – especially of communities near the projects, including on revenue-sharing 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<br>
slide42. 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 42 Chatham House | The Royal Institute of International Affairs<br>
slide43. 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 Recommendations for designing high impact local content policies 43 Chatham House | The Royal Institute of International Affairs<br>
slide44. 44 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 Chatham House | The Royal Institute of International Affairs<br>
slide45. 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 Chatham House | The Royal Institute of International Affairs 45<br>
slide46. Chatham House | The Royal Institute of International Affairs 46 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.<br>
slide47. Chatham House | The Royal Institute of International Affairs 47 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?<br>
slide48. 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 capacity-building 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 48 Chatham House | The Royal Institute of International Affairs<br>
slide49. Chatham House | The Royal Institute of International Affairs 49 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<br>
slide50. Recommendations for coordinating foreign advisory services Recommendations for speeding up capacity in oversight Recommendations for building operator capabilities in the NOC Chatham House | The Royal Institute of International Affairs 50<br>
slide51. 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 51 Chatham House | The Royal Institute of International Affairs<br>
slide52. Chatham House | The Royal Institute of International Affairs 52 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)<br>
slide53. 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 53 Chatham House | The Royal Institute of International Affairs<br>
slide54. Chatham House | The Royal Institute of International Affairs 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 54<br>
slide55. Chatham House | The Royal Institute of International Affairs 55 Recommendations for speeding up capacity-building in oversight functions (2/3) When entrusting NOC with a

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 *Governance Role<br>
slide56. Chatham House | The Royal Institute of International Affairs 56 What are ‘governance roles’ ? Monitoring operators Managing data Potential governance roles Promotion of resources Negotiation of licenses Advising government on oversight of sector<br>
slide57. Chatham House | The Royal Institute of International Affairs 57 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<br>
slide58. 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 . Recommendations for the setting the NOC’s role operator 58 Chatham House | The Royal Institute of International Affairs<br>
slide59. 59 What steps are involved in developing operational capabilities? 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. Chatham House | The Royal Institute of International Affairs<br>
slide60. Chatham House | The Royal Institute of International Affairs 60 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<br>
slide61. Policy Option: Take regulatory responsibilities away from the NOC Recommendations for overcoming entrenched interests in a reform Recommendations for weeding out corruption 61 Chatham House | The Royal Institute of International Affairs<br>
slide62. Chatham House | The Royal Institute of International Affairs 62 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 Recommendations for overcoming entrenched interests Challenge: Reforms that upset entrenched interests are likely to be opposed<br>
slide63. Chatham House | The Royal Institute of International Affairs 63 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<br>
slide64. Chatham House | The Royal Institute of International Affairs 64 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<br>
slide65. Chatham House | The Royal Institute of International Affairs 65 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<br>
slide66. Recommendations to prevent flaring Recommendations for minimizing operational risk 66 Chatham House | The Royal Institute of International Affairs<br>
slide67. 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 Challenge: Regulating to minimize operational risk in a low capacity setting Recommendations for minimizing operational risk Chatham House | The Royal Institute of International Affairs 67<br>
slide68. Chatham House | The Royal Institute of International Affairs 68 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<br>
slide69. Challenge 2: Prevention of flaring when gas found in oil (or sometimes condensate) reservoirs is not used by the operator Flaring 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! 69 Chatham House | The Royal Institute of International Affairs<br>
slide70. Chatham House | The Royal Institute of International Affairs 70 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?<br>
slide71. Chatham House | The Royal Institute of International Affairs 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, vmarcel@chathamhouse.org
We would also like to hear how you used the Guidelines presentation and adapted its content to your national context. 71<br>