Open Oil open modeling philosophy
Our objective is to facilitate the building and publication of as many Project Economic Models as possible by project stakeholders outside the mining and oil companies.
The extractive industry has long relied heavily on project economic modeling for making investment decisions and managing and optimizing projects. Such modeling is seen as a core capability for investors. In contrast, governments and other stakeholders have historically had limited access to these skills and tools –at least without specialized (and often expensive) support– and thus lag far behind the industry, lacking the capacity to do robust, objective analysis. This is a key part of the “information asymmetry” between investors and governments.
Lack of modeling expertise compromises government efforts to design effective fiscal regimes, or to negotiate terms for a specific project. It makes it hard for non-government stakeholders in a project to do any meaningful analysis and contribute objectively to the debate about the terms under which the extractive industry works in their country.
While they contain many of the same mechanics as industry models –and generate many of the same metrics investors use–, project economic models destined for such public policy use and intended to be put in the public domain, have a range of uses and constituencies that differ from “closed” (private) and industry models. We identify four main functions of public interest financial modeling:
- Analytical – provide useful estimates of government revenues over lifetime and particular time spans, indicators of government take, and project-level comparators to feed into fiscal regime analysis.
- Pedagogical – Modeling is an essential pre-requisite for system-level insight into revenue flows around the oil, gas and mining industries, not a grand finale.
- Advocacy – Models based on public domain information pinpoint very specific information gaps which create uncertainties which are resolvable by the release of that information. As such, they serve as powerful tools for keyhole transparency requests.
- Government support – Even if put in the public space as opposed to created in a traditional closed, client relationship open financial models have considerable capacity to aid governments in two ways by providing the basis for a shared understanding within and across the many, varied government institutions.
Because this initiative is part of our promotion of an open modeling paradigm, our starting assumption is that models developed as part of this program will be published on the Internet along with an accompanying narrative report. However, exceptions can be made to this for ex officio government participants, by arrangement.