How to read and understand oil contracts
As some of you may know, at the end of October, we at OpenOil will be convening a group of world class experts to write a book on how to understand oil and gas contracts, aimed at the non specialist. We believe this will be the first book to open the process of oil and gas contract negotiations to the lay reader, as well as an innovative use of a method we’ve borrowed from the software world, called a ‘booksprint’, which brings together the group in a farmhouse in Germany for 5 days to collaboratively author the book, which will then be released under the Creative Commons license.
Why do we think this will be useful? With contract transparency emerging as best practice in the extractive industries, there are now dozens of oil and gas contracts in the public domain as a result of decisions by Timor Leste, Ghana, the DRC, the Kurdistan region of Iraq, and Peru, as well as many other model contracts also available to read. But how many people know how to understand them? What does that R factor mean? What does this specific contract focus on? Are those environmental specifications appropriate, or old fashioned, or actually fairly radical? Where would you see if a stabilisation clause exists against changes in national law, or even, what is a stabilisation clause?
These are all questions whose answers can be found in dense law textbooks, aimed at those doing postgraduate courses on oil and gas contract law, or by paying $5,000 to attend a one day course on oil contracts. But these are both elite options, available to only a small majority of people, and we firmly believe that the art of understanding contracts, however niche, should be open to all. We understand that this target audience isn’t large; members of the GOXI network make up a sizeable proportion in fact, as do member organisations of Publish What You Pay, and followers of the Natural Resource Charter. That’s why we’ve engaged all three networks in this project, to ensure that people who are already involved in campaigning for better governance of extractive industries can be reached and gain access to the book.
The method we’re using, the booksprint, is a new and exciting technique, which involves us starting on the Monday with very little, and ending up on the Friday with a finished book which we will publish in digital format the very next week. It’s a big contrast to the literature which already exists on the topic, and we’ll have a designer in the room to illustrate certain concepts and make the book less text-heavy.
Booksprint participants include members of the GOXI network – Peter Eigen, former EITI Chair and founder of Transparency International, Cindy Kroon from the World Bank Institute; Susan Maples Natural Resources Governance Fellow for the Government of Liberia and author of leading contract transparency publication Contracts Confidential, Jay Park, a Norton Rose lawyer who has advised many states and investors regarding oil regimes; Nadine Stiller from the German International Cooperation GIZ, and other participants from Sierra Leone, Liberia and Azerbaijan. We’ve included a mix of lawyers and non lawyers, as well as people with experience from both the company side and the government side, to get as wide a perspective as possible.
We hope that the book will allow readers to have an informed debate around governance of the industry, which is of increasing importance. While it’s easy to see the target for oil companies in contract negotiations – maximising financial return – the aim for governments is a lot more complex, as overall benefit for the country has to be considered, deciding between multiple competing objectives. This might include ensuring that the oil company agrees to hire a certain number of nationals from the country, or that strict environmental regulations are adhered by, as well as ensuring they get a good rate of return from their natural resources, amongst many other considerations. Especially for countries who have only recently found natural resources, coming to these negotiations without any prior experience can be an incredibly difficult task, but one with huge implications for the citizens of the country.
We hope that the book will be a step towards democratizing the complex world of oil contracts, allowing more people to really understand the contractual environment governing their oil industries and, hopefully, encouraging more people to act as informed watchdogs on government officials and oil companies in country.
We also welcome feedback on the project and what you’d like to see included, so just email email@example.com if you have any ideas or comments; every useful contribution will be attributed in the printed book.