The energy majors still need to be more transparent in their dealings with government, says a new report
Despite their poor reputation, oil and gas companies have improved the transparency they apply to their operating practices. However, there is plenty more they should be doing, according to Transparency International’s latest report.
The new study – the 2011 Report on Oil and Gas Companies – published in conjunction with energy resource accountability body Revenue Watch, rates 44 companies (representing 60% of global oil and gas production) on the public availability of details of their anti-corruption programmes and how they report their financial results in the countries where they operate.
Key findings include that 82% of the surveyed companies report on their anti-corruption programmes to some degree, compared with only a half in a similar survey in 2008. In 2011, transparent financial reporting to some degree occurs in 44% of those companies, compared with a mere handful back in 2008.
By disclosing anti-corruption measures plus key financial data, particularly on a country-by-country level, companies can demonstrate their commitment to preventing the misappropriation of revenues.
“It is good news that transparency is improving, but too few companies publish what they pay governments in each country where they operate,” said Huguette Labelle, TI’s chairwoman, launching the report.
TI believes that the two-thirds of the world’s poor who live in resource-rich countries have a right to know how much money their governments get from companies to exploit these resources.
Robin Hodess, TI’s group director for knowledge and research, argues it’s time that the oil business fully embraced transparency. “The [oil and gas] sector has previously been exposed on sustainability and social issues. The gap between their earnings and the conditions and livelihoods of workers has been tremendous. Governments must be accountable when contracting projects.”
Investors take note
As a result, TI is urging investors to include corporate transparency in their analyses and valuation models before committing to investing. International rating companies, likewise, have a role to play in highlighting lapses in transparency in their risk evaluation models.
Other findings reinforce that publicly listed companies generally have stronger reporting regimes than non-listed companies. Similarly, international oil companies fare much better than their national counterparts.
TI says most oil companies are fairly open but that “disclosure of equity or field partners in upstream operations … remains infrequent, despite the fact that equity minority partnerships often present corruption risks”.
The best-performing companies in the report include the UK’s BG Group, although its country-level disclosure is poor, and Norwegian-owned Statoil, which had the highest overall score for the three categories. Gazprom and Sonangol, along with six other companies, score very poorly on publicising anti-corruption programmes.
BG Group spokesman Neil Burrows says a strong position on anti-corruption is important to the company. “It is ingrained from top to bottom and from the bottom to the top.” BG Group is signed up to a number of industry best practice programmes, including the Extractive Industries Transparency Initiative. “We are comfortable that we are doing as much we possibly can to operate under good governance,” Burrows says.
But Robin Hodess says country-level disclosure will become more enforced. “With new legislation, for example [the Dodd-Frank Act] in the US, companies will be forced to provide more openness in areas such as country-by-country disclosure.”