Guyana should not hold off on establishing a National Oil Company (NOC), according to the former head of Brazil’s oil and gas regulatory body, Nelson Narciso Filho, who says it would be essential for ensuring local capacity in industry planning and negotiations.
“How are you going to retain the knowledge to get independent if you don’t have the capacity locally? My personal view is that you should have a national company. For me there is no doubt,” Narciso Filho, who headed Brazil’s National Agency of Petroleum, Natural Gas and Biofuels, told Sunday Stabroek during an interview on the sidelines of the recent Institute of the Americas’ La Jolla Energy Conference. “…Who will be retaining all that knowledge? Will you be dependent forever on the other guys?” he questioned.
An NOC is either fully or largely owned by a national government. A 2011 World Bank paper, titled National Oil Companies and Value Creation, had noted that “NOCs are of great consequence to their country’s economy, to importing countries’ energy security, and to the stability of oil and gas markets.”
At that time it was highlighted that NOCs controlled approximately 90 percent of the world’s oil reserves and 75 percent of production (similar numbers apply to gas), as well as many of the major oil and gas infrastructure systems, either as producers or as the “gatekeepers” for exploitation by private oil companies (POCs).
Narciso Filho, who is now President of the Nnf Consultoria em Energia Ltda in Brazil, highlighted the NOC as a needed long term investment.
“Look at Brazil. Petrobras today is still responsible for 90% of production [in] the country. To get there, Petrobras had a long way to go but they had to go…I don’t want to get involved in any kind of local discussion, political discussion and so on, but for me, to have a local oil company, not necessarily a huge company, is a must. This is the team that gets the responsibility to understand. People that will be trained…You know, [when] a company signs a contract with the country, they sign a contract for 25 [to] 30 years. Twenty five to thirty years is a [marriage], so you have to find a way of exchange. You have to benefit. I don’t know what others say, but that is my humble view,” he said.
“The NOC, normally speaking, is the representative of the government in the business; that is why they are called national oil company. I know there are a lot of people saying you should not have it because of corruption. Well, corruption is not a particularity of Guyana, Brazil or whatever. What they need to do is establish procedures to stop it. But put together an NOC to understand, to learn and to be an operator of the future. Look, Liza is very nice but the history of petroleum is that it goes up, then it has a soak and then the production starts to deplete. And at that time, no one is speaking. If you have the NOC going on, then the NOC can take care of this. Maybe in 20 years’ time they would be in a position to negotiate but build that capacity that is my view… I am fully against who says that NOC will bring more corruption. You cannot kill the horse because it has a fly, you have to kill the fly. So if the fly is there and the fly is the corruption, do not kill the horse, kill the corruption. It is not the horse that put the country in that position it is the fly,” he added.
Risks and rewards
The issue of the creation of an NOC for Guyana has been discussed at a number of forums, where there have been arguments both for and against.
Chatham House fellow and project head of the New Petroleum Producers Discussion Group Dr Valerie Marcel has said that she advised the Guyana government on the “risks and rewards of various NOC models” and that some looked better than others in the local context.
Dr Marcel, who has worked extensively on researching projects on NOCs and governance issues as well as strategic issues affecting the petroleum industry, has said her role is to not give directives but aid in providing governments with resources and information on both the pros and cons of NOCs.
Marcel was part of the group of international researchers and petroleum policy advisors, including Sir Paul Collier and Sir Shridath Ramphal, who came here last year March and met with Cabinet ministers to discuss the emerging oil and gas sector and to give insight into prudent preparations for the revenues that will be generated the industry.
She told a conference in Houston this year that it will be “quite interesting” to see where Guyana falls on the question of an NOC as she laid out possible outcomes to plan for. “It is important to consider that if it creates an NOC which aims to take on an operator role like a Tullow Oil or Kosmos Energy – responsible for the development of oil fields – building the required capacity takes 15 years on average and involves substantial investments. In light of the transition, government should ask how many years it will have to reap the rewards of that investment before oil demand declines and the NOC struggles,” she said.
Last year, Minister of Natural Resources Raphael Trotman, who had then held responsibility for the oil and gas sector, had told this newspaper that although the establishment of an NOC was not in the government’s immediate plans, one would be formed sometime in the future and he noted that it had been advised by several international organisations that it was the way to go.
Since Trotman’s comments, government has not recently signaled plans for establishing an NOC. Head of the since created Department of Energy Dr. Mark Bynoe has stressed that that agency’s main focus is to create a roadmap for the sector, review a gap analysis currently being undertaken and update overarching legislation.
As project leader for the New Petroleum Producers Discussion Group (NPPDG), which is a network and community of practice bringing together 35 countries, Dr Marcel had also spearheaded a two-day stakeholders’ seminar here in November, 2016, with the theme, ‘Good governance: Preparing for First Oil.’
During one of the sessions, speakers focussed on the formation of an NOC. A subsequent NPPDG report on the seminar, dated February 24th, 2017, noted that “NOCs are important to emerging producers because they can be vehicles for developing technical and commercial skills in the petroleum sector, enabling countries to participate in the production of their natural resources. Through state participation (equity stakes in licences that are held by the state or its representative agency) the NOC can potentially transfer benefits beyond petroleum revenues to the state. However, the net financial gain to the state depends very much on the efficiency of the NOC and the soundness of its commercial strategy.”
It added that many Guyanese in the discussions were positive about the idea of having an NOC and felt the prospect of such an institution was an attractive one, “which contained a powerful symbolic message regarding national ownership of their source.”
But several external speakers, according to the report, urged Guyana to consider some of the negative considerations. “Firstly, there is an opportunity cost to financing an NOC: indeed, are those funds better spent on other budgetary priorities such as vocational education to train Guyanese for jobs in the oil sector, for example? Secondly, financing an NOC can be difficult when it does not have equity stakes in producing licences that generate revenue. In Guyana’s case the offshore acreage has already been awarded (with no provision for an NOC stake) but minority equity stakes could feasibly be reserved for the NOC in acreage that is relinquished. Finally, other producers in the room also suggested that Guyana would need to be ready to confront the likely rush of requests and favours that would follow the establishment of an NOC. In this respect, other producers were clear that it would be sensible to establish careful governance mechanisms to reduce the opportunity for nepotism and corruption. One speaker suggested that should the government decide to create an NOC, it should include the right of an NOC to minority equity stakes in future licences but work to establish the capacity of the regulator first. Also, when establishing an NOC it is important to carefully delineate its mandates and ensure that it is affordable,” it explained.
