In this article, we explained transparency, why transparency and reporting matter in the Oil & Gas sector, reporting frameworks and standards, the examples, the challenges, and the future.
Definition
Transparency and reporting in oil and gas refer to the practice of making information about operations, finances, and environmental impact publicly available to stakeholders. This process involves disclosing data on revenue, production, payments, and sustainability to foster accountability, reduce corruption, improve governance, and build trust among the public, government, investors, and companies.
Features of Transparency and Reporting:
Disclosure of financial data: Companies disclose financial statements and reports to show their performance and revenue generation. This includes payments to governments and how revenue is managed and spent.
Operational clarity: Reporting includes making information about production, exports, and engineering data accessible. For example, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) launched initiatives for engineering audits to establish reliable data for measurement points.
Environmental and social impact: Companies report on their environmental impact and sustainability efforts to build trust and ensure accountability to the public and investors. Standards like the GRI 11 Oil and Gas Sector 2021 provide guidance for this type of reporting.
Public access to information: Transparency requires making data readily accessible, reliable, timely, and understandable to various stakeholders. This allows citizens to engage with decisions about resource management and hold companies and governments accountable.
Anti-corruption measures: Transparency is a crucial tool for fighting corruption and mismanagement by making it easier to detect graft and inefficiencies.
Regulatory frameworks: Regulatory bodies and initiatives like the Extractive Industries Transparency Initiative (EITI) promote these standards. In Nigeria, the Petroleum Industry Act (PIA) is a key reform that aims to increase transparency in the sector.
Builds trust: Transparent reporting fosters trust between society, government, and companies.
Improves investment climate: It can improve the business climate and reduce political risk associated with secrecy.
Enhances accountability: It creates a mechanism for holding companies and governments accountable for how public resources are managed.
Drives efficiency: Openly sharing data can help identify areas for improvement and drive innovation within the industry.
Why Transparency and Reporting Matter in the Oil & Gas Sector:
Combating corruption: Publicly accessible financial data helps detect and prevent corruption, mismanagement, and the loss of state revenue.
Informing public debate: Transparency allows citizens to be informed about a country’s resource wealth, which is vital for democratic debate on fiscal policy and spending priorities.
Ensuring accountability: Reporting on revenues, taxes, and other payments holds both companies and governments accountable for their actions.
Managing resource wealth: Transparency is essential for managing resource wealth effectively and preventing the “resource curse,” where resource-rich countries fail to experience development.
Supporting national development: When revenue is managed transparently, it can be directed towards projects that benefit the public, such as infrastructure and social programs.
Benefits for the industry
Building public trust: Open communication about operations and impacts can improve a company’s relationship with the public and stakeholders.
Enhancing corporate governance: Transparency in corporate governance practices helps boards and executives make better decisions and increases oversight.
Facilitating planning: Open data about resource availability and production allows for more informed long-term planning by both governments and companies.
Improving operational efficiency: Initiatives focused on transparency, such as engineering audits, can help identify and fix problems that lead to oil and gas losses.
The Examples of Transparency and Reporting the Oil & Gas:
Financial reporting:
Disclosing financial audits, company finances, budgets, and subsidiary operations.
Using internationally accepted accounting standards and publishing independently audited accounts, especially for national oil companies (NOCs).
Providing country-by-country reports on profits, expenses, taxes, and employees to combat tax evasion.
Operational and contractual transparency:
Holding open and competitive bidding processes for licenses and contracts.
Publicly disclosing the details of subsidiaries and fields of operation.
Transparently reporting on production and sales volumes to ensure accurate revenue calculation.
Environmental and social reporting:
Reporting on efforts to reduce greenhouse gas emissions, manage water and energy resources, and minimize environmental impact.
Transparently reporting environmental impact assessments, monitoring data, and remediation efforts.
Open communication with host communities about operations, benefits, and grievances.
Beneficial ownership:
Establishing registers to identify the individuals who ultimately own or control a company.
Strengthening the collection and verification of beneficial ownership data.
Project-level reporting:
Disclosing payments and other data on a project-by-project basis.
This allows citizens and officials to assess if the government is receiving its fair share from each project by comparing payments to project-specific contract terms.
The Challenges of Transparency and Reporting the Oil & Gas:
Financial and regulatory challenges
Financial opacity: Companies may underreport earnings or inflate expenses to minimize tax obligations, which reduces government revenue.
Weak oversight: Inadequate government resources and technical capacity for monitoring operations lead to ineffective oversight, notes Businessday NG.
Poor implementation: Ineffective implementation of tax legislation and poor adherence to transparency standards like the Extractive Industries Transparency Initiative (EITI) by some companies exacerbate the issue.
Political interference: Government interference in processes like the divestment of oil blocks compromises due diligence and hinders transparency.
Operational and data-related challenges
Complex ESG reporting: The sheer volume of data needed to capture the full value chain for ESG reporting, including emissions, safety, and social issues, is a significant effort.
Data inconsistency: There is often a lack of consistent or unified technical standards for reporting, making it difficult to compare data across companies and operations.
Data and technical capability: A lack of the necessary hardware, software, and skilled professionals to effectively manage and analyze the vast amounts of data generated is a major hurdle.
Cultural and security challenges
Cultural resistance: There can be a cultural and behavioral disconnect between traditional oil and gas business models and the digital technologies required for better transparency and reporting.
Security issues: Threats like oil theft and pipeline vandalism create risks and operational costs that make transparency more difficult to achieve and maintain, according to Olaniwun Ajayi LP.
The Future of Transparency and Reporting the Oil & Gas:
Technological advancements
Digitalization: Implementing digital solutions to automate regulatory processes, which improves efficiency and makes data more open to scrutiny.
AI and machine learning: Using AI to help monitor wells, predict drilling locations, and ensure accurate hydrocarbon accounting.
Data-driven oversight: Leveraging technology to support regulatory efficiency, boost revenues, and provide verifiable data for all operations.
Regulatory and legal frameworks
Stronger legislation: Enacting and enforcing new laws that specifically mandate transparency in the oil and gas sector, including disclosure of revenues, contracts, and beneficial ownership.
Updated standards: Expanding reporting requirements to include environmental, social, and governance (ESG) factors, greenhouse gas emissions (Scope 1, 2, and 3), and aligning with international standards like those from the Global Reporting Initiative (GRI).
Streamlined laws: Amending existing laws, such as strengthening the NNPC Act and the Freedom of Information Act, to include the oil and gas sector and enhance accountability.
Conclusion
In the oil and gas sector, transparency and reporting are crucial for accountability, risk management, and stakeholder trust, which forward-thinking companies are embracing as a strategic advantage rather than just a compliance issue. By accurately and consistently reporting their activities, companies can build credibility, manage expectations, and ensure a more sustainable future for operations, ultimately securing their social license to operate.