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US Oil Revenue Oversight Bill May Restrict Resource Access

US Oil Revenue Oversight Bill May Restrict Resource Access

Dow Jones


 -(Dow Jones)- The House Financial Services Committee Thursday will consider legislation to increase revenue transparency in the petroleum and mining industries. But as Congress scrambles to find ways to cut record fuel prices, oil companies warn it may be sending a bullish signal to the energy futures market by further restricting access to the world’s dwindling petroleum resources.

Advocates of the bill say it could be a major weapon against international corruption.

But oil companies say they believe it could create an obstacle to access to fast-dwindling resources in some of the last petroleum frontiers, hampering their ability to compete against national oil companies from energy-hungry nations such as China and India.

Fears of a decline in oil resources have helped push crude prices to levels above $135 a barrel.

“The main fear is that if the host countries don’t buy into this – which would be a unilateral move – that U.S. companies would be penalized, and they wouldn’t be able to make deals in those countries,” said Karen Matusic, a spokeswoman for the American Petroleum Institute.

The bill – sponsored by Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee – would require all U.S.-listed oil, natural gas and mining companies to publicly disclose payments to governments of countries in which they are exploring and producing. Specifically, all payments of more than$100,000 would have to be disclosed in companies’ financial statements to the Securities Exchange Commission. It would apply to both U.S. and international companies listed with the SEC. Currently, companies can do so voluntarily – and many participate in a global program called the Extractive Industries Transparency Initiative – but they are under no obligation.

“Our companies are members of the EITI because the global buy-in is the most effective policy, rather than a unilateral program,” Matusic said. API’s members include ExxonMobil Corp. (XOM), Chevron Corp. (CVX) and ConocoPhillips (COP).

Bill Could Penalize Companies

Frank Verrastro, director and senior fellow at the Center for Strategic and International Studies’ Energy Program, said companies could be penalized in two ways: restricted access on future bid rounds or disclosure being deemed as violating existing contract agreements.

“Oil firms are always subject to the sovereign when it comes to resource allocation, and that’s what the big concern is,” Verrastro said.

A U.S.-government-mandate, as opposed to a voluntary effort “could restrict even more access by Western companies – whom you want for environmental reasons, good operating practices and transparency, and they would be replaced by Chinese, Indian and Russian companies that don’t care,” Verrastro said.

Many companies, including Royal Dutch Shell PLC (RSDA) and Exxon say they support voluntary transparency initiatives because it cultivates good governance. In 2003, for example, with the permission of the Nigerian government, Shell Nigeria became the first company to publish royalties, taxes and other payments made to that government.

Supporters Say Fight Against Global Corruption Needed

Supporters of the bill, such as the Revenue Watch Institute and the Open Society Policy Center, say the bill could establish a much stronger foundation to fight corruption globally as it would make payments to national governments public. The legislation – comparable to the voluntary EITI established several years ago – is designed to fight the so-called “resource curse,” the paradox under which countries with an abundance of natural resources tend to have less economic growth than those without.

“Countries are making record profits from selling oil and minerals. The bill will help ensure that this money is used to lift millions of people out of poverty, not to enrich corrupt elites and create instability that threatens U.S. interests,” said Corinna Gilfillan, the U.S. head of Global Witness.

Proponents of the bill say that in forcing oil and mining companies such as Shell and BHP Billiton Ltd.(BHP) to disclose payments, it will help prevent the corruption that breeds conflict and poverty, allowing citizens to hold their governments more accountable, and money to flow to the government rather than be siphoned into officials’ offshore bank accounts.

Resource-rich countries such as Nigeria, Azerbaijan and New Guinea have been plagued by corruption, and revenue that could have helped pull countries out of a third-world state has instead often fostered conflict and bribery.

According to Publish What You Pay, a campaign that aims to improve the accountability of governments in resource-rich nations, an estimated $380 billion in government funds was stolen or wasted between 1960 and 1999 in major U.S. oil-supplier Nigeria.

The kidnapping of oil workers and the bombing of oil pipelines, which has kept more than 1 million barrels of oil a day off the market, are the result of the historic corruption and poverty in the oil-rich Niger Delta region, said Allison Lenthall at the advocacy group.

Companies See Production Fall In Niger Delta

Companies such as Shell and Exxon have seen their production repeatedly fall well below capacity as the conflict has intensified in the Niger Delta over the past few years. The companies have declared force majeure on hundreds of thousands of barrels in exports in recent days. A force majeure provides a company legal protection for not meeting its contractual obligations.

Some industry experts say the oil companies’ arguments against the revenue- transparency bill aren’t convincing.

“I am certainly not dismissing them, but I think on balance, the risks of any competitive disadvantage are fairly low because such a large part of the international industry would be covered,” said Karin Lissakers, director of Revenue Watch Institute and a former U.S. director at the International Monetary Fund.

“The countries would run a big risk of doing severe damage if they were to kick some country out that’s obeying U.S. law or if they were to have a policy of systematically excluding the 90% of the majors covered by this legislation,” Lissakers said.

Faith Stevelman, a director at the Center on Business Law & Policy and a professor at New York Law School, said many international companies – including some of the Chinese oil companies – wouldn’t be able to benefit from U.S. capital if they didn’t submit to the law.

-By Ian Talley, Dow Jones Newswires; 202-862-9285; [email protected]

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  06-25-08 1559ET
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