Moves in Europe and G8 in spite of oil industry competitive concerns

Fresh support has emerged for the global movement to increase the financial transparency of oil, gas and mining operations around the world. Last Thursday, the European Commission President Barroso committed to advancing legislation in Europe, with a proposal tabled by October this year. Barroso called on the G8 to match this commitment.

On Friday the G8, in its final declaration from the Deauville, France summit, for the first time committed to mandatory disclosure laws and regulations for disclosure of payments from companies to host governments around the world. (At the last minute one G8 member pushed for “or to promoting voluntary standards” to be added to the declaration, managing to “create an oxymoron out of an opportunity”, as the Oxfam reaction to declaration said.)

Nevertheless, it is undeniable that, after the leadership role the US played with the passage of the Cardin-Lugar provision in the Dodd-Frank Wall Street Reform Act, movement is growing in Europe and elsewhere to expand the transparency net. The progress is notable in spite of the fact that the oil industry, especially, has complained that transparency regulations will put them at a competitive disadvantage against companies not covered by the rules.

How credible are these arguments? Not very.

First, the US law covers the vast majority of internationally operating oil companies, including all the traditional supermajors (Chevron, Exxon, Shell, BP, Total, ConocoPhillips) and many other companies from the US, Europe, China, Brazil and elsewhere. In fact, since the law was passed in July, 2010, we’ve at least one oil company –Kosmos Energy –join the New York Stock Exchange. In its IPO paperwork with the SEC, it noted this new requirement but decided to go public anyway.

Second, several significant oil and mining companies already disclose country-by-country payment information. (In some cases, this is project-level payment information – e.g. at the mine level – where the company has only one project in the country. The project- level reporting in the SEC requirement has some companies particularly apoplectic – but it is precisely the kind of information most affected communities want to see.) Statoil – the large Norwegian oil company with operations around the world in such places as Angola, Nigeria and Libya – reports on payments in every country of operation. Newmont Mining, a global company with gold mining operations in places such as Ghana, Peru and Indonesia, reports payments in every country of operation (and supported the Energy Security through Transparency Act – the underlying legislation for the provision in the Dodd-Frank Act). Talisman Energy in Canada and AngloGold Ashanti of South Africa have adopted the same practices. These are large, professionally managed and publicly-traded companies. Clearly, if this practice put them at a competitive disadvantage, they would not be doing it.

Largely unsaid, but assumed, by companies is that they would lose out to companies not required to disclose when bidding for new licenses in countries where the government wanted to keep payment information secret. In other words, they want a free hand to enable government secrecy, mismanagement and corruption in kleptocratic states. But would this hypothetical even play out? Even in a country not interested in transparency, such governments are generally looking for companies to offer the best bids on three key terms – fiscal terms (in other words, the best profit sharing for the project); financial backing (capital to carry out what are multi-billion projects in most cases); and technical capacity (a few companies have a lock on deep-water drilling technology). A credible counter-argument can be made that if companies covered by a transparency rule still made the best bid on these terms they would win.

With the increased global momentum for mandatory disclosure rules on payment disclosure by oil, gas and mining companies, it’s telling that these competitiveness arguments largely haven’t carried water with policy makers.