Durable extractive contracts are negotiated and based on the continued sharing, in good faith, of key financial and technical data to build a common understanding of the anticipated performance, main risks and opportunities of the project throughout its life-cycle.
24. Absence or limited availability of information on the value of the resources (quantity, quality, price, and costs) affects the ability to determine the size of possible benefits to be shared between host governments and investors. It is recognised that during negotiations the final financial outcome is not known by any party, because there is both risk and uncertainty on the presence, size and quality of the resources, as well as their potential production levels, extraction, development, closure/decommissioning costs, and future market prices. However, at the pre-negotiation stage there may be qualified estimates of possible outcomes.
25. Investors will have better information on the level of capital investment required, the actual operating costs, as well as the value of the intangibles they have developed (e.g. intellectual property related to the design of bespoke equipment and/or new extraction methods or otherwise bringing the resources to market). Host governments may rely on the investor’s estimates with the assumption that they will provide objective information at the time of exploration, development and extraction stages. Host governments should recognise that the financial and feasibility studies carried out by investors to assess the viability of the investment do not normally contain definitive data, but rather qualified estimates about geological contingencies, input costs, the volume and quality of the resources to be developed, and cost of compliance with national laws and internationally recognised standards.
26. Given the uncertainty surrounding the true value of the resources until they are found, produced and sold, these datasets are projections that remain subject to multiple vagaries that are liable to affect the financial balance of the contract with potentially significant implications for the distribution of the economic benefits and/or costs originally envisaged.
27. For this reason, host governments may wish to undertake their own independent valuations and develop their own financial models to identify multiple scenarios and possible outcomes under different circumstances (fluctuations of commodity prices, quality, costs, etc.), while recognising that they may need to protect strategic and industry-sensitive information.
28. In oil and gas, many contracts are signed following a tender process where investors place bids in accordance with bidding criteria set out in legislation or regulation. These criteria can set out the required information that needs to be made available to the government. Well-designed auctions induce competitive bidding. In mining, bid rounds are much less common and consequently, there are less established mechanisms to share information to respond to tenders.
29. Sharing of information between host governments and investors on qualified estimates of the resources, development costs and scenarios, production profiles, and closure/decommissioning liabilities can help build a shared understanding around the assumptions for defining the economic equilibrium of the contract as well as in the design of the revenue allocation mechanism to sustain the viability of the project throughout its life-cycle (see also Principle VIII). The information provided by investors should be at least of a similar frequency, detail, and quality to the information that is made available to financial lenders and for their own internal decision-making purposes. Working from the same assumptions and economic and financial models, leveraging third party macro-economic data where appropriate may help build trust between the parties, foster alignment of interests, and build a true long-term partnership. In line with Principle IV, the adoption of a holistic and integrated approach is recommended to capture not only financial and economic aspects, but also performance on safety, environmental, social and community obligations and internationally recognised standards.