Without governance, oil firms face big challenges
Dubai, August 28, 2013
National oil companies that pursue upstream and downstream of oil and natural gas resources have a significant role to play in many regions around the world. But without proper governance, they may face mighty challenges, said an expert.
“Regardless of the type of NOC set-up, (entirely public, Joint Ventures, or other operating models), they share one element that is common and essential to them all to ensure maximal returns are realized, which is establishing and implementing a governance framework. This Corporate Governance framework should help overcome certain obstacles and yield many benefits” said Rami Wadie, partner, enterprise risk services at Deloitte Middle East.
A new Deloitte whitepaper, ‘Connecting the bright spots: key components of an oil and gas governance framework’, puts forth the establishment and implementation of a governance framework as the common and essential element for all NOCs to ensure maximal results.
“Without proper governance, NOCs can face significant challenges in many areas, both external and internal to the organization. As is evident across the region, many of the NOC’s are going through leadership and management style change which requires strong and well established governance practices to ensure consistent, controlled and continued operations,” he added.
Deloitte experts find that a governance framework that provides transparency and evokes confidence in the controls instituted across the NOC will also provide benefits across the spectrum. These include:
*Funders and investors will be more confident that their capital will be employed to the best interests of the organization, leading to lower risk and better returns for them.
*Internal issues will also be addressed through stringent standards enforced through proper organizational design, delineation of authorities, and detailed policies and procedures that safeguard the well-being of the NOC as a whole.
The Deloitte whitepaper lists the external challenges associated with lack of governance to include difficulty in sourcing funding and attracting investment and a distorted view of earnings and balance sheet performance.
When addressing internal challenges, the whitepaper finds they include system inefficiencies in all aspects such as capital deployment, organizational performance and operational issues as well as adverse effects on the NOCs sustainability and social responsibility.
A thoughtfully planned and successfully implemented governance framework can reverse these problems, the Deloitte’s whitepaper added.-TradeArabia News Service