legal obligations and moral responsibilities

7/28/2019 Legal Obligations and Moral Responsibilities

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Introduction to Upstream Oil and Gas Training

I4TH 16TH May 2013, Intercontinental Hotel, Nairobi

Legal obligations and moral

responsibilities

Philip M. Tsar

(Petroleum Engineer National Oil Corporation - Kenya) 1


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Scope

Legal obligations

moral responsibilities

(legislation,

environmental controls,

local content)

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Background & Introduction

Kenya has been exploring for oil since 1937

Current framework (Petroleum Act and ModelProduction Sharing Contract (PSC)) wasdeveloped prior to discoveries; Model PSC is

oil-centric 2012 discoveries in Turkana and gas-prone

offshore highlighted need to modernize existingframework

GoK and World Bank engaged Hunton &

Williams and Challenge Energy (Consultant)to review and provide guidance for updatingthe existing framework

Background of Legal and RegulatoryFramework

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Overview of Legal and Regulatory Guidance

1. Sector Roles and Responsibilities

2. Environmental Matters

3. Local Content

Legal & Regulatory Guidance addresses thefollowing major topics

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1. Sector Roles and ResponsibilitiesPolicy

Responsibility for each petroleum sector function(policy-making, upstream, and midstream/downstream)should be clearly assigned

Delineation of roles avoids inefficient overlap ofresponsibility and inconsistent treatment of similar

issues Contractors prefer clarity as to which entities have

which responsibilities

Importance of Defining Sector Roles

Responsibility for Petroleum SectorPolicy

Currently assigned to the Ministry of Energy

Recommend that the Ministry retain this

responsibility

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1. Sector Roles and ResponsibilitiesPolicy

Currently assigned to Ministry

Energy Bill proposes that NAFFAC take over

negotiation role

Recommend that the Ministry retain responsibility

(but encourage consultation with NAFFAC)

Currently assigned to Ministry

Energy Bill proposes mix of NAFFAC, Ministry,

and ERC

Recommend establishment of upstream regulator

(within or reporting to the Ministry),

Would be responsible for conducting contract

compliance audits & ensuring upstream activities

carried out in accordance with law, regulations,

and PSCs

Recommend NOCK (or separate upstream arm of

NOCK) be responsible for participation role

Depending on capacity, could be as upstream

operator or GoK representative in commercialventures with Contractors

PSC Negotiation

ContractAdministration

GoK Participation

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1. Sector Roles and ResponsibilitiesPetroleum Act & Energy Bill 2013

Existing Energy Act only addresses downstreampetroleum matters

Energy Bill would include upstream matters, as well,and repeal Petroleum Act

Energy Bill should address broad, overarching energysector matters (including ERCs mandate, which will beexpanded to include midstream)

Petroleum upstream-specific matters should beaddressed separately in the Petroleum Act

Incorporating into the Petroleum Act the upstream-

related provisions of the Energy Bill, so that the twopieces of legislation dovetail seamlessly

No need for a separate Gas Act to address midstreamand downstream mattersthe relevant issues can beaddressed in the Energy Bill and Petroleum Act,collectively

Interface between Petroleum Act and Energy Bill

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2. Environmental MattersStandards

Contractors required toobserve good

international petroleum

industry practice

Energy Bill would add a

broad obligation toconserve resources and

protect environment

Energy Bill would require

compliance with

EnvironmentalManagement Act for a

narrow range of activities

Currently Applicable

Environmental Standards

Approach

Clearly define what ismeant by good industrypractice (intended topermit applicability ofevolving best practices)

Require compliance withEnvironmentalManagement Act

Require Env. ImpactAssessments and Env.Mgmt. Plans to help limit

env. And social impact Add liability and

insurance requirementsfor pollution damage andremediation

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2. Environmental MattersAbandonment & Decommissioning

Contractors typically required to restore areas tooriginal state after operations

Can be costly process

Concern is that contractors could avoid

decommissioning at end of license term Recommended solutionestablish a reserve fund

to pay for decommissioning

Abandonment & DecommissioningKey Concerns

Petroleumoperationscommence

Establishmentof Reserve

Fund

Contractorfunds out ofpetroleumrevenues

Petroleumoperations

cease

Restoration oarea using

Reserve Fund

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2. Environmental MattersGas Flaring

Economicallywasteful

Environmentally

damaging

Currently permittedafter 60 days notice

Trend is to prohibit,

subject to exceptions

Need can be

reduced with third

party access regime

(discussed above)

Associated Gas Flaring Recommendations

Impose generalprohibition on flaring

Exceptionsfacility

testing,

emergencies, safety

reasons

All flaring should be

monitored and

regulated

Development plansmust account for use

of associated gas

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2. Environmental MattersLand Rights Petroleum law refers to general land law

for land rights issues (e.g., compulsoryacquisition)

Petroleum-specific rules are included inpetroleum law (e.g., directional drilling)

Land Rights: TypicalApproach

Petroleum Act only mentions a few land

issues; no reference to Land Act Energy Bill mostly refers to Land Act, but

needs clarity (e.g., scope of right to

construct on any land)

Existing Approach

Petroleum Act should refer to Land Act forall but petroleum-specific land rightsmatters

Energy Bill should more consistently referto the Land Act as appropriate

Recommendations

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3. Local Content

Balance between local content requirements

and current/projected institutional capacity

Capable of evolving over time as institutional

capacity increases Broad stakeholder support

Effective monitoring and implementation

Distinct from contractor-administered

Corporate Social Responsibility programs

Tricks to Successful Local Content Regimes

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Thank you!!!

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