Why include private entity contracts in a governance database?
If you’re interested in public governance of the extractive industries, why bother with so-called “auxiliary” contracts, those between two private entities? In a word, because they may be useful.
The third edition of OpenOil’s contract repository contains over 100 contracts relating to oil production in 30 countries. They include sales agreements for oil and gas, joint operating arrangements between two commercial entities and all kinds of asset transfers – sales of existing stakes, options to buy a stake in the future, terms under which a gas project will supply electricity to the grid and so on.
There are two issues here which ought to be separated. The first is that as agreements between two private parties there aren’t the same arguments around whether they should be published. There probably is a maximalist position which says all contracts relating to every aspect of the industry should be published regardless of the nature of the entities in the agreement. But that’s not our position. We are releasing these contracts simply because they are there – companies publish them on financial markets, just as they do Host Government Contracts (HGCs) – contracts where one of the signatories is a state or one of its representative bodies, such as a national oil company.
But they are worth curating because they add insight. If you’re grappling with the complex issue of gas pricing, term contracts and whether gas prices are linked to oil or separate, why not take a look at this gas sales contract from Israel? Or the same for crude oil from Albania? If you want some idea of how upstream gas production ties into local electricity production, try this distribution agreement from Tanzania.
Joint Operating Agreements provide useful insights into the arrangements companies in a consortium make among themselves. And farm-ins, -outs, and -downs show the structure and value of the sale of stakes by one company to another, a crucial block of analysis in industries where a project is moving from exploration to production, since this often involves an exploration company “flipping” the asset to a better capitalised production-based company.
There are literally thousands of such contracts out in public domain – they are common for projects in North America, where a competitive oil industry in transparent financial markets means investors demand these kinds of disclosures, which have a direct bearing on the value of their shares. The repository’s foray into this area is modest. There might at some later stage be an argument to collect a wider range of such contracts because some aspects of best practice are international, and so there is something to learn even from contracts relating to very different operational contexts. But for the moment, it includes only auxiliary contracts which relate to upstream operations in governance countries of interest.
It’s all part of the long, slow process of raising the transparency game. The fact is that HGCs are simply one document of what might easily be 50 to 100 contractual arrangements around a major oil project: transport agreements, lifting agreements, measuring agreements, all kinds of sub-agreements between principal parties. To be confident of building system-level analysis in the public domain, we need it all.