The oil industry is known to be secretive and corruption-prone. Moreover, oil contracts are extremely difficult to unravel. However, transparency in the oil sector is increasing even if it begins from a very low level. Governments are increasingly publishing their contracts with international oil companies. But still, oil contracts are extremely difficult to read and understand. This article discusses OpenOil’s attempt at writing a book on how to read and understand oil contracts. In this regard, it hopes to inform the local population about how the oil sector works.
By Zara Rahman
Think of the oil industry and, along with spills and environmental problems, many people think of secrecy and corruption. But transparency is increasing, albeit from a low base and poor historical record in the area. The tide is gradually turning with more and more data being put online, and there are many initiatives doing great work on making machine-readable data accessible and understandable. But until now, oil contracts have remained extremely difficult to unpack.
Limitations of transparency
There is a trend emerging in governments publishing, or putting online, the contracts they sign with international oil companies. This is undoubtedly a great success for the transparency movement globally. There are now seven jurisdictions around the world who publish their oil contracts, with more to come, and transparency of oil contracts is being written into constitutions and emerging as a best practice globally.
Publishing these contracts is the first step towards allowing citizens to know what is happening - something that will increase democratic ties between citizens and the state. But there remains one key problem – a typical oil contract is over 100 pages long and written in complicated legal jargon. It is not the kind of document that someone without a law degree, or years of specialisation in the topic, can pick up and hope to understand.
Tools to help people understand these contracts have, until now, been overwhelmingly aimed at industry employees or those with elite levels of education. These have generally taken the form of private courses (costing $3,200 per person for two days, and held in London or Abu Dhabi) or expensive legal text books aimed at the postgraduate law student. Clearly, neither of these is going to help a civil society activist in the Niger Delta make sense of the contracts governing their oil industry.
Bringing open thinking to the oil industry
To address this, OpenOil convened a group of ten world-renowned experts at the beginning of November to come together for a week and collaboratively write a book on how to read and understand oil contracts, in what is known as a 'book sprint’.
To many, the idea of writing a book on a topic as complex and involved as oil contracts seemed crazy. Even more so, perhaps, considering that no preparation was done beforehand; no planning chapter titles, or organising who was going to write what. All work began at 9am on the Monday, and involved having a lot of faith in the facilitator of the method, who has now used the book sprint method to produce over fifty books.
The result was ‘Oil Contracts – How to Read and Understand them’, released under the Creative Commons license and thus free for all to download.
How does a guidebook help?
The terms decided in contracts can have long reaching effects, and be valid for anything up to 20 or even 30 years. And it is in the oil contracts that many factors are decided on, such as: the environmental standards that companies have to abide by, clauses relating to the effect of the project on the local economy and, most importantly for many, the amount of money that the government is going to get.
Unfortunately, however, there is no single fixed figure that we can look up to know for sure how much money the government is getting. Profit or production splits are complicated calculations, typically outlined in a number of different clauses (and there are many more variants depending upon the type of contract used). This means that in order to have a real understanding of governance of the industry in a particular country, it is essential to have a real handle on all of the issues outlined in the contract.
The guidebook runs through all the salient issues addressed in contracts, using actual excerpts from contracts around the world to compare ways of dealing with certain issues. Eight different public domain contracts are referred to and quoted extensively throughout. Half of this 'family' of contracts are actual signed contracts, and half are 'model' contracts, which have been released by their respective governments. Contract excerpts, though a little intimidating to begin with, are explained in detail to allow the reader to get a handle on the language used in the contracts. Hopefully, after reading the book they can pick up a contract and feel some sense of familiarity in the contract terms used, as well as know where to look to answer their particular question.
What now?
OpenOil is now looking for partners to work with on the evolution of the book, and there has already been strong interest in translating the book into various languages to increase its accessibility across the world. A training curriculum will be developed out of the book, and training courses – a low cost equivalent to the expensive courses mentioned above – will be organised for civil society, parliamentarians, media, and interested members of the public.
These courses will take place in locations where these issues really matter – Kampala, Nairobi, Dar es Salaam, to name just a few. For now though, the book has been downloaded hundreds of times and, it is hoped, has already become a crucial tool for those wanting to know how to understand their oil industry.
