The Americas 26th annual La Jolla Energy Conference
Guyana “sending right signals”. The critical issue of transparency still looms - Raul Gallegos.
The Institute of the Americas 26th annual La Jolla Energy Conference got underway this past week in San Diego, California marking the beginning of two days of dialogue and debate on the future of sustainability and energy policy in the Americas, reported Guyana's OilNow.com
Brazil and Mexico had prominent speakers on the agenda with Wilson Center Directors Paulo Sotero of the Brazil Institute, and Duncan Wood of the Mexico Institute both set to lead sessions at the conference. On May 24, Duncan Wood co-chair a roundtable on the outlook for U.S.-Mexico energy trade; and on May 25, Paulo Sotero had discussion on the changing energy and political environment in Brazil.
As Guyana moves closer to entering the league of oil producing nations, developing an understanding of how the industry works and what are the driving forces behind exploration and production activities, and how these factors influence the entire supply chain are becoming even more important.
OilNOW representative, Michael Leonard, attended the evening's opening ceremony where a number of issues relevant to Guyana's emerging oil and gas industry were discussed.
Speaking at the event, David Victor, Professor, School of Global Policy & Strategy (UCSD) said a key challenge for oil producing countries continues to be the management of oil revenues. Getting this wrong leads to a number of challenges as can be seen all over the world, and closer to home for Guyana, with its neighbor, oil-rich Venezuela.
Higher oil prices, while good for operators, the host country, and investors, also create incentive for more corruption, Mr. Victor pointed out.
Already, Guyana is in a race against time to put the necessary legislation and framework in place in preparation for first oil. The country has been getting support from a number of international partners and is making progress in putting the necessary systems in place. Multiple regulations are being drafted and proposed amendments to existing laws are being written and studied as the Guyana government gears up for the beginning of a journey that could transform the nation and deliver prosperity to its small population of just over 750,000.
Measures taken to date include; include the updating of Guyana's National Upstream Petroleum Sector Policy, creating a Guyana National Local Content Policy (draft), revision of model production share agreements, updating of the 1986 Petroleum Exploration and Production legislation, and fashioning of a draft Sovereign Wealth Fund Bill. Petroleum taxation fiscal rules and regulations have also been drafted and the consultation process for the Petroleum Commission of Guyana completed.
The country's natural resources minister, Raphael Trotman, has indicated that a national oil company will be developed in 2018 and a petroleum institute will be established by 2020.
Issue of transparency looms
A political risk analyst in the oil and gas industry said today at an energy conference in California that while the Guyana Gov't is “sending right signals” and appears to be “pro-business” the critical issue of transparency in the South American country still looms.
Senior Analyst for the Andean Region, Raul Gallegos, of Control Risks' Global Risk Analysis, said his organization is tasked with advising companies about the risk they face on the ground from communities, NGOs, governments, and other groups in countries they operate in.
In the case of Guyana, Mr. Gallegos said a number of companies have been “knocking on their doors” asking how they should manage these risks. “They are very concerned about what kind of framework they are going to be facing, as far as the legal framework for the energy industry.”
The Analyst said so far these companies are not so worried about political stability and whether or not Guyana's President, David Granger, would “still be in office by the end of his term.”
“But they are concerned that the government would take the right steps to adopt sustainable policies over time and not end up ruining the oil sector…and certainly a fragile small society with a huge influx of cash that is likely to come in the next few years,” Mr. Gallegos pointed out.
He said building an oil industry from scratch, as is the case in Guyana, is a “huge challenge” and it is important that lessons are taken from countries that have done it before. “My understanding is that the Granger government has been reaching out to Canada and Norway and a number of players. I think that is a good thing.”
Mr. Gallegos said he hopes that the current government in Guyana adopts some of the lessons learnt from these countries since it is a challenge to manage a new industry and the amount of wealth that comes from oil production activity. “It is worse to have money mismanaged than not to have any money at all,” he stated.
He said this is a lesson for every resource-rich country, noting that some countries, such as Norway, manage it much better than others.
Multiple regulations are being drafted and proposed amendments to existing laws are being written and studied in Guyana, as the country gears up for oil production, set to get underway in 2020.
The political analyst spoke with OilNOW on the sidelines of the 26th annual La Jolla Energy Conference currently being held in San Diego, California.
Guyana's success as an oil producing nation will depend heavily on the regulatory framework that is established and the transparency of agencies overlooking the operations of the oil and gas sector. Experts attending an energy conference in the US say regulators must be specially trained and equipped to work with multinational oil companies such as ExxonMobil , that operate under an international standard of regulations.
Speaking to OilNOW at the 26th annual La Jolla Energy Conference in San Diego, California, on Wednesday, Zeeshan Syed, Vice President at Alberta Energy Regulator, a Canadian-based corporation, said one of the key risk factors for countries like Guyana looking to attract foreign investment, is the regulatory system that is in place. “The more transparent and the more of an international standard that exists; it makes sense for operators and investors because the risk goes down.”
He said, contrary to the view that multinational oil companies prefer little or no regulation, the reality is that regulations provide a stable framework for them to operate, and this is preferred. “They would much rather have a template or a model that is applied around the world because it is easier for them. They assign resources accordingly as well. A lot of instability comes with zero regulations.”
Over the last two years there has been a lot of interest from regulators around the world in the oil and gas sector about how they can improve systems and procedures. Mr. Syed said a number of these regulators have been looking at Canada to learn from both its mistakes and successes.
He is part of the International Centre of Regulatory Excellence (ICORE), a world-class regulatory training institute, working in partnership with Mexico to build momentum on regulatory best practices. ICORE is an initiative of Alberta Energy Regulator.
Mr. Syed said many countries are in a position where they need to create national-level legislation that enacts energy reform.
In Guyana, multiple regulations are being drafted and proposed amendments to existing laws are being written and studied as the country gears up for oil production, set to get underway in 2020.
The country has also been moving to set up a number of regulatory and oversight bodies, such as the recently constituted Petroleum Department within the Ministry of Natural Resources. Work is also ongoing for the establishment of a Petroleum Commission.
While these are necessary and important steps, the need for placing the right personnel in positions is important if the regulatory framework is to be effective. “You need to have that strength in departments, you need to have the proper leadership there, you need to hire the right people who have to be trained in the right way to be proper regulators,” Mr. Syed pointed out.
Meanwhile, Luis Martinez Montoya, Coordinator of Advisors, ASEA, said the most effective approach is for Guyana to look at international best practice in the industry and build on this, rather attempting to reinvent the wheel. “You have to look into international practice. There are a lot of things that have been done in some other countries that are working greatly, and you should look up to those practices. Try to get what works for your country and just get rid of what doesn't.”
There is a lot to be learnt from the industry itself, he said, pointing out that operators know what they are doing, and listening to them can be instructive. However, he was quick to point out that this must be done in a way that avoids conflict of interest and the role of the regulator must be separated from the role of companies. “Listen to them, but just stay on your feet as the regulator, and you have to find a way in which you are able to avoid conflict of interest and so on. I would say transparency is one of the best mechanisms to avoid problems.”