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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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