Sunday, 25 November 2012

Understanding Oil Contracts - Special Guest Post

Uhuru Blog is pleased to bring you a special guest post by Zara Rahman, a research associate at OpenOil, an energy consultancy and publishing house based in Berlin founded on the values that creative, practical and socially progressive policy making in the oil and gas industry is vital to our collective future. They have published a freely available book compiled together with leading oil experts and professional, available here. As Tanzania emerges as an important future source of oil and gas, understanding contracts signed with the government becomes increasingly crucial.

Oil contracts – why so important? 

By Zara Rahman

The problem

Think of the oil industry, and you think of secrecy, corruption, spills and environmental problems. But transparency, even in this secretive industry, is increasing. Hard to believe perhaps given the industry's poor record in this area, but the tide is turning, and more and more data is being put online. There are many initiatives doing great work on making machine-readable data accessible and allowing people to really understand it, but until now, there has been one data stream which has remained incredibly elitist.

Oil contracts. There is an emerging norm of governments publishing, or putting online, the contracts that they sign with international oil companies, and this is a great success for the transparency movement globally. No longer will there be secretive, closed door negotiating sessions which leave citizens (and even many in the government) wondering what exactly was agreed to, how much money their government is getting, what the oil company should or should not be doing, and whether or not they got a 'good deal'. There are now 7 jurisdictions around the world who publish their oil contracts, and there are more to come, with transparency of oil contracts being written into constitutions and emerging as a best practice globally.

Publishing the contracts is the first step towards allowing citizens to know what is happening, but there is one key problem. An oil contract is typically over 100 pages long and written in complicated legal jargon. It is not the kind of document that someone without a law degree, or years of specialisation in the topic, can pick up and really understand.

Tools to help people understand these contracts have, until now, been overwhelmingly aimed at industry employees or those with elite levels of education– private courses costing £2,000 per person for two days, held in London or Abu Dhabi, or expensive law text books aimed at the postgraduate law student. Clearly, neither of these is going to help a civil society activist in the Niger Delta make sense of the contracts governing their oil industry.

The solution – bringing open thinking to the oil industry

At the beginning of November 2012, OpenOil convened a group of 10 world-renowned experts to come together for a week and collaboratively write a book on how to read and understand oil contracts, in what is known as a 'booksprint.' The method was developed in the open source technology world, and has been developed by Adam Hyde of and involves no pre-production, and very little post-production.

To many, the idea of writing a book on a topic as complex and involved as oil contracts seemed crazy, especially considering the fact that no preparation was done beforehand; no planning chapter titles, or organising who was going to write what. All work began at 9am on the Monday, and involved having a lot of faith in the facilitator of the method, who has now used the booksprint method to produce over 50 books.

The result was “Oil Contracts – How to Read and Understand them”, released under the Creative Commons license, free for download from

How does a guidebook help?

The terms decided in contracts can have long reaching effects, and be valid for anything up to 20 or even 30 years. The environmental standards that companies have to abide by, clauses relating to the affect of the project upon the local economy, and most importantly for many, the amount of money that the government is going to get, are all decided upon in the contract.

Unfortunately however, there is no one fixed number that we can read and then know for sure how much money the government is getting. Profit or production splits are complicated calculations, typically outlined in a number of different clauses (and there are many more variants depending upon the type of contract used). This means that in order to have a real understanding of governance of the industry in a particular country, it is essential to have a real handle on all of the issues outlined in the contract.

The book runs through all of the salient issues addressed in contracts, and uses actual excerpts from contracts around the world to compare ways of dealing with certain issues. 8 different public domain contracts are referred to and quoted extensively throughout. Half of the 'family' of contracts are actual signed contracts, and half are 'model' contracts, which have been released by their respective governments. Contract excerpts, though a little intimidating to begin with, are explained in detail to allow the reader to get a handle on the language used in the contracts, so that after reading they can pick up a contract and, firstly, feel some sense of familiarity in the contract terms used, as well as know where to look to answer their particular question.

What now?

OpenOil are now looking for partners to work with on evolution of the book, and already there has been strong interest in translating the book into various languages to increase its accessibility across the world. A training curriculum will be developed out of the book, and training courses – the low cost equivalent to the expensive courses mentioned above – will be organised for civil society, parliamentarians, media, and interested members of the parliament.

These courses will take place in locations where these issues really matter – Kampala, Nairobi, Dar-es-Salaam, to name just a few. For now though, the book has been downloaded hundreds of times and, it is  hoped, is already a crucial tool to those wanting to know how to understand their oil industry. 


  1. Hi there, nice post. This is an interesting and very informative topic. Thanks for sharing you thoughts on this issue. Keep it up, looking forward to read another one in the future. Cheers!
    Sign contracts online is private and secure and takes much of the hassle and frustration out of document signing.

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