By Joseph Williams, Natural Resource Governance Initiative
This post originally appeared on www.resourcegovernance.org on June 13, 2017
Some days are more exciting than others when oil and gas companies disclose the payments they make to governments. We have seen a number of big days like this over the past years.
Statoil became the first company to report under a mandatory payment disclosure regime in early 2015, undermining U.S. oil lobby arguments.
Shell, which had fought so vigorously against project-level payment disclosure laws, published its first payments to governments report under U.K. law in April 2016 and included information on China and Qatar, countries it previously claimed prohibited disclosure.
BP, which had barely published any country specific information (save for seven EITI countries, often with huge time lags), reported on USD 15.2 billion worth of project-level payments in 23 countries in June 2016.
These disclosures were exciting, and staggered. Over the last fortnight, similar reports have poured in.
On 31 May, Italian oil giant ENI published its first report (search for "ENI"). It includes information on payments of nearly EUR 5 billion in 2016 to government entities in 30 countries including Nigeria and the infamous OPL 245 oil block. The lack of any information on China is a concern, though, and requires follow up. ENI’s production in China was 2,000 barrels of oil equivalent per day in 2016. In 2015, where ENI’s production was 3,000 barrels of oil equivalent per day, it made tax payments of EUR 1.4 million according to a voluntary report.
By last Friday, approximately 600 companies (not allowing for duplicates where a consolidated report was filed for multiple companies), had reported under Canada’s Extractive Sector Transparency Measures Act (ESTMA). The reports will take some time to sort through and NRGI is working on this with our partner PWYP Canada. In the meantime, there have been some pleasant surprises.
Chevron has published its report for relevant subsidiaries under Canada’s ESTMA. We expected information related to its operations in Canada to be in this report. Indeed, Chevron’s U.K. subsidiary has reported on its U.K. operations under U.K. law, as is the case with the subsidiaries of other large U.S. companies like ExxonMobil and ConocoPhillips operating in the U.K. What we did not expect to find was Chevron’s Canadian subsidiaries reporting CAD 3.28 billion in payments to Indonesian and Nigerian government entities for projects such as its Rokan PSC in Indonesia or the Agbami field (OML 127/128) in Nigeria due to the way the corporation is structured. While this by no means captures all of Chevron’s payments to government worldwide, it is the first time Chevron has reported under a mandatory disclosure law in some of the key countries for which these laws were intended to increase transparency. Chevron was instrumental in lobbying for the disapproval of an effective transparency rule in the U.S. earlier this year. Today its anti-competitiveness claims look more ridiculous than ever.
CNOOC Ltd agreed to list on the Toronto Stock Exchange as per requirements when it acquired Canadian company Nexen. As a result, CNOOC Ltd has disclosed USD 2.6 billion in payments to government entities in 17 countries. This is the most comprehensive disclosure report we have seen so far by a Chinese state-owned company and puts it far ahead of ExxonMobil and Chevron in terms of the information on payments to governments it makes available to citizens around the world. CNOOC’s disclosures also raise questions as to why its peer Sinopec, which is listed on the London Stock Exchange, has not reported under U.K. law for its Angolan and Chinese operations. In another interesting quirk of these disclosure regimes, CNOOC has also filed its full payments to governments report in open data format (take your pick out of CSV, JSON or XML) with Companies House under U.K. law in order to meet the disclosure obligations of its U.K. subsidiary.
Royal Dutch Shell
To top all of this off, today Shell has published its report on payments to governments in 2016. It is available on Shell’s website, as well as via Companies House in CSV, JSON, or XML format. It is available as a stock exchange announcement, as well. This year, Shell has reported on USD 15 billion in payments made to governments in 31 countries.
This is up from 24 countries last year, partly due to Shell’s acquisition of BG Group (which explains the inclusion of Trinidad & Tobago and Tunisia). It’s a decrease in terms of payments, down from USD 21.8 billion last year. Nigeria is the largest payment recipient at USD 3.6 billion. In Canada, Shell has again reported payments to a number of First Nations entities. Like last year, Shell is actually receiving large tax refunds in the United States (USD 254 million) and the U.K. (USD 142 million). Shell’s project-level data needs careful examination to ensure the company is not aggregating legal agreements together to obscure project level reporting.
Finally, production entitlements account for nearly two-thirds of all payments reported by Shell. This is important. For example, Shell’s report reveals that it made in-kind payments (mainly in the form of production entitlements) totalling 134.2 million barrels of oil equivalent (BOE) in 2016 to at least three government entities in Malaysia, including Petronas, the national oil company. The question then becomes: What is the government doing with these barrels of oil equivalent and who is buying them? It is crucial that the buyers of these in-kind payments and the payments they make to purchase this production are included in these payment disclosure laws given the size of the transactions and their susceptibility to corruption. Thankfully, the launch of an international dialogue looking at this issue is taking place this week at the OECD in Paris to take forward commitments made by major trading hubs such as the U.K. and Switzerland at the 2016 London Anti-Corruption Summit.
A significant reporting shift
We are definitely at an inflection point. In addition to the ESTMA disclosures described above, over 90 companies have reported payment information under U.K. law for 2015. A similar number are reporting for 2016 (Shell’s report is one such disclosure.) In total, over USD 136 billion was paid to governments in 112 countries around the world by companies reporting under U.K. law for 2015. NRGI will detail this more fully in an upcoming report.
I encourage everyone—campaigners, investors, analysts, government official and others—to dive into these reports. The more eyes we have on them, the more likely we will see this transparency lead to empowerment of oversight actors and greater accountability.
There remains much work to be done, including ensuring these reports are more easily accessible; querying the reports with companies; improving the underlying legislation; analyzing them for insights; and using them to bring about accountability more purposefully in countries where accountability is lacking most. Please do get in touch if you would like to be involved with this work.
Joseph Williams is a senior advocacy officer with the Natural Resource Governance Institute (NRGI).
For many us, whom have dedicated years to advocate for the laws that require the disclosure of payments in Canada, the time has come! Reports required to be disclosed in accordance with the Extractive Sector Transparency Measures Act (ESTMA) are piling up, and shortly (May 2017) we expect there to be hundreds and hundreds of disclosures covering countries from every continent. You can explore the reports here.
Reports by Canadian or Canadian-listed extractive companies stand out from their peers in a couple of ways: Firstly, most of the reports will be for mining companies; secondly, many of the companies are small, with just a few projects, and thirdly, Canada has strong project-level disclosure requirements for public mining companies, which means that there will a lot of complementary information available for each mining company/project.
One of the big questions is: what can I do with this data? Well, there are lots of possibilities. Once the reports have all been filed sometime next fall, we will be able to pull it all together into one dataset, so that we can identify trends and aggregate data. However, before this happens, there is an important opportunity to dig into individual company reports.
At Publish What Pay Canada’s retreat this year, this is exactly what we did. Participants attending the retreat were divided into groups and each group was given one of the mining projects below:
Every member of the group was provided with a folder complete with information on their assigned mining project. The information in the folders drew from 5 primary documents types: Investor presentations, mine project webpages, regulatory filings (technical reports, audited financials), and at times external sector specific information, such as EITI reports or data on uranium production and pricing from the World Nuclear Association. The latter was particularly important, because unlike gold, uranium is often sold on long-term contracts with negotiated prices, rather than using a global price.
Participants were asked to look for certain pieces of information, including:
But most importantly, they were asked to determine whether they could conduct a royalty audit. A royalty audit involves comparing the royalties paid with a calculated assumption of what should have been paid. To conduct a royalty audit, one needs access to project-level production, average annual sale price and the royalty rate. Further, the royalty must be production-based.
With one hour to dig deep into the information at hand, participants come up with some interesting results. Below we explore the results from two groups.
The group that analyzed Perseus Mining Company’s project, “Edikan Gold Mine” found that 10% of mining royalties in Ghana are transferred from the central government to local governments and local land-owning authorities. According to the ESTMA report, Perseus paid 17,890,000 Australian dollars /13,856,860.00 USD (given the exchange rate of 0.74425 provided in the ESTMA report) in royalties from July 1st 2015 – June 30th 2016. As a result, 1,789,000AUD/1,385,686.00 USD should have been transferred to local governments and authorities. The group concluded that it would be worthwhile to follow up to see whether the money was transferred and what it was used for.
The group also conducted an audit on the royalties paid by Perseus for the production at the Edikan mine. The royalty audit involved comparing the royalty payment of 13,856,860.00 USD with the royalty payment calculated by the group given annual production, average price, and the royalty rate. All data was found in Perseus annual report.
In this case the calculation relied upon gold sold versus gold produced, although the numbers are very similar. While the group stumbled at first, given the different currencies used in the annual report (USD) and the ESTMA report (AUD), the final royalty audit showed a discrepancy between the royalty payments reported and that revealed through the royalty audit we conducted. The royalty audit revealed a figure 4.5 million USD below that which was reported. It would be worth reaching out to Perseus to better understand why the royalty audit revealed a figure well below what Perseus Mining paid in royalties for the Edikan project in 2015/2016.
Annual gold sales of 153,957 ounces x average annual price 1,224.00 USD/ounce x Royalty rate 5% = 9,442,168.00 USD
The group looking at the Selinsing Mine in Malaysia was able to complete a royalty audit using available information. To conduct the audit the group first had to convert the royalty payment reported in the ESTMA report from Canadian into US dollars. Given that the ESTMA report did not outline the CAD/USD conversion, an average rate for 2016 of 0.75 USD to each 1 CAD was used, thus royalties of 1,150,000.00 CAD became 862,500 USD. Additionally, given that Monument Mining settled a gold forward sale contract in 2015/2016 for 5,000 ounces/gold at $519.00/USD, the group had to calculate and add two different figures for royalties, assuming that royalties were paid in 2015/2016 on the gold forward sale.
Gold Sales 18,150 ounces x 1,157.00 USD/ounce x royalty rate of 5% = 1,049,975.50 USD
Gold forward contract settled for 5,000.00 ounces/gold x 519.00 USD/ounce x royalty rate of 5% = 129,750.00 USD
Total Sum: 1,179725.50 USD
While the group noted that the royalty rate in the ESTMA report were roughly similar to the royalties revealed by the audit, with the exchange rate factored in, there appears to be a discrepancy of over 300,000 USD. Some of this difference may be due to the actual exchange rate, but it would still be worthwhile to question the company about this difference.
Another thing noted by the group was the highly variable corporate expenses charged by the company to the project, ranging from 19% of revenues in 2014 to 9.49% in 2015, to 16.5% of revenues in 2016. The group noted that it would be interesting to further understand why corporate expenses are so high.
Paladin Energy posed a challenge, as the royalty rate applied to the project in Namibia was not publicly disclosed. Research conducted after the group exercise shows that the Langer Heinrich mine may be subject to a 3% royalty rate, however, Paladin reported the project was subject to a 2% royalty in 2006.
Another important point noted in research conducted after the group activity, was that Paladin Energy reported 6,600,000.00 USD in royalties paid to the government of Namibia in their ESTMA report, a figure that is markedly different from that reported in its annual report of 4,982,697.00 USD in royalties to the Government of Namibia for FY 2016 (p.47). Both figures were cited as referring to financial year 2015/2016. This discrepancy merits further discussion with the company.
Given that the royalty rate applied to the project was unclear, the group sought to identify the royalty rate paid by Paladin given production and price. Luckily, Paladin had only one producing property in FY 2016, thus all figures in the annual report reflected production at the Langer Heinrich project. It can be noted that the royalty rate ranged from 2.7 to 3.65% depending on whether it was calculated using the Annual report or the ESTMA report. I will follow up with Paladin to try and understand the discrepancy between the ESTMA report and the annual report and can report back any findings.
Using royalty payment reported in Paladin’s Annual Report
In FY2016 production was 4,763,000 lbs x price 37.75/lb = $179,803,250.00/4,982,697.00 = 2.77 % royalty rate
Using royalty payment reported in ESTMA report
In FY2016 production was 4,763,000 lbs x price 37.75/lb = $179,803,250.00/6,600,000 = 3.65 % royalty rate
All the groups noted that the exercise was more challenging than anticipated. Moreover, to write up and verify the results took me considerable time, piling back through company reports and taking into account new information not available during the group exercise. That said, royalty auditing is empowering, arming civil society with critical questions which can be asked of governments and companies. Similar, a closer look at each project yielded other questions, which can form the basis of an informed conversation with companies and governments.
Friends of transparency, good governance and open data - it's time to activate!
Friends of transparency and good governance – it’s time to activate!
The regulation implementing the groundbreaking anti-corruption law, the Cardin-Lugar Provision of the Dodd Frank Act (Section 1504), is in critical danger of being repealed by the House and Senate. This law allows citizens in resource rich countries to ‘follow the money’ and hold their governments accountable for graft, waste and abuse.
This regulation is supported by civil society groups around the world, investors with nearly $10 trillion in assets under management, government officials and nearly all major oil, gas and mining companies.
Please, call your Senators' district and DC offices using the phone numbers in the spreadsheets below and make your outrage known.
If you need some help, here is what you can say when you call:
I am calling because I am concerned citizen from [State]. I have heard that Congress is attempting to undo an important oil and gas anti-corruption regulation, called Section 1504 of Dodd-Frank, using the Congressional Review Act.
This regulation, also known as the Cardin-Lugar Provision, is meant to give citizens like me information about if we are getting a good deal on our nation's natural resources. It also protects our national energy and security interests by decreasing corruption abroad.
After trying to dismantle the Congressional Office of Ethics, it makes no sense for Congress to go after ANOTHER anti-corruption provision.
I want to know if you (your boss) plans on voting AGAINST any efforts to undo this critical provision?"
Thank you for your support!
Scroll to the bottom to see additional actions you can take through our partner organizationsCheck out our page on RulesAtRisk.org for more information
Priority Senate Offices
Other Ways to Take Action on the Cardin-Lugar Anti-Corruption Rule:
The Aleph search tool, built and maintained by OpenOil, is a vast database of public documents filed by oil, gas, and mining companies in some of the biggest legal jurisdictions in the world. Aleph gives us access to millions of documents all in one place that we can search by content, but finding the exact information we want can seem intimidating. The folks at OpenOil have provided some good resources for getting started with Aleph; find them here and here. In this blog post, I will help make navigating this system even easier by providing a step by step guide on how to automatically have the information you are most interested in delivered from Aleph straight to your inbox.
At PWYP-US, we are particularly interested in (and excited about) the payments to governments reports that oil, gas, and mining companies listed on EU stock exchanges have recently disclosed. Major companies like BP, Shell, and BHP Billiton have all published reports for 2015. As more and more reports come online, there is a possibility that some may slip through the cracks. Luckily, Aleph has a search tool that can let you know when any new filings become available.
The first step is to navigate to aleph.openoil.net and register for an account.
Once that is done, on the home page click on “Alerts” in the upper right-hand corner. You should see this screen:
Click “Add” to set up a new alert.
You now have two fields to populate, “Query” and “Label”.
The “Query” field is what Aleph will use to search the database. Aleph has some advanced searching capabilities, which you can read about in depth here. We are going to use the composite querying function.
Setting up an alert for new payments to governments reports
If you want to find documents related to payments to governments reports, searching “payments to governments” is a little too imprecise. We need to get more specific .
The payments to governments reports are mandated by law, and as such, have a specific form name in each legal jurisdiction.
So, let’s construct a query that will cover all of these:
"Article L. 225-102-3" OR "DTR 4.3A" OR "Section 1504" OR "13q-1"
Add that to “Query” under your new alert and give it a name under “Label”. Select whether you want to be updated daily or weekly, then hit submit.
And there you have it!
Aleph will now automatically update you via email on any new documents that fit the conditions you outlined in your query. Currently, the London Stock Exchange is the only jurisdiction from which Aleph pulls filings that require payments to government reports. However, the first mandatory disclosure reports will be released in Canada next year, and in the United States beginning in 2018. Including Section 1504 and the French article number may mean you get notifications that don’t contain actual mandatory disclosure reports, but making your search somewhat broad ensures that if a company filing, an Extractive Industry Transparency Initiative report, or contract mentions any of the search terms, you will be notified.
*Note: Running this query we noted that using "13q-1" occasionally returned results that were not relevant. However, these should be minimal, and including "13q-1" ensures a more robust query than only using "Section 1504".
Tommy Morrison is a Research Assistant at PWYP-US, follow us on Twitter @pwypusa
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