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Glossary

  • Asymmetric information

    This is a term that economists use to describe a situation where, especially during contract negotiations or transactions, one party has much more knowledge and information than the other.

  • Corporate social responsibility (CSR)

    The idea that private companies not only have a duty to abide by the law and to create a profit for their shareholders, but also have responsibilities to wider society (and even to future generations).

  • Cost oil, Profit oil

    If a company finds oil in an area that it is exploring, it is usually entitled to recover the costs of its investment from sale of the oil it discovers.  Eg, if the company spends $100 million on exploration and production, and finds oil worth $500 million, it is entitled to recover its $100 million from total sales of the oil; this is called “cost oil.”  The remaining $400 million is called “profit oil” and is divided between the company and the government in accordance with the Production Sharing Agreement (PSA) they reached.  The PSA may outline a timetable for the company’s recovery of “cost oil”– for example, stipulating that during the early years of production the company cannot take all of the oil as “cost oil” but that a certain percentage of it must be counted as “profit oil,” to ensure that the government does not have to wait for years before seeing any share of the profits.  (See also Production Sharing Agreement.)

  • Dutch Disease

    ‘Dutch Disease’ refers to a situation where growth in income from natural resources damages other sectors of a country’s economy.  This happens because increased revenues from natural resource exports tend to increase the value of the exporting nation’s currency. That makes the country’s other exports, such as agricultural products and manufactured goods, more expensive and therefore less competitive in world markets.  The economy thus becomes over-reliant on the natural resources that it is exporting—and this can be particularly damaging if, for any reason, there is a drop in world price for those natural resources.

  • Escrow account

    This is a bank account where money is deposited by one party to a transaction for payment to another party when certain specified conditions have been met.

  • Exploration Area, Block

    An area of land that an oil company is licensed to explore.  In 2001 the government of Uganda divided the Albertine Graben into five Exploration Areas (EAs).  Since then, some of these EAs have been sub-divided into smaller areas.  This is a normal pattern in exploration and extraction: once the existence of the resource is proven, the trend is towards licensing smaller and more focused areas.

  • Farm-down, Farm-in, Carve-out

    If a licensed exploration company strikes oil or gas, it may sell a share in its rights over the discovery to other companies.  This is called a “farm-down” and is a common practice among small exploration companies, as it enables them to share with others the investment costs and technological challenge of getting the oil out of the ground and on to world markets.   A “farm-in” is a similar arrangement made by an exploration company before it strikes oil: the company may sell a share in its exploration rights, typically in order to raise capital or attract necessary expertise for completing exploration.   Similarly, a “carve out” is where a company divides an area over which it holds a concession and sells rights over part of that concession to another company.

  • Gas flaring

    Gas flaring is the practice of burning off (generally through a tall chimney) gases that cannot easily be captured and put to productive use.  It occurs on oil and gas wells, refineries and petrochemical plants, and also landfill sites.  Some flaring is still considered necessary at these installations for safety reasons, because it serves as a safety-valve in high pressure systems.  However, technological advances over recent decades have made flaring ever less necessary, especially in oil and gas fields, and it has reduced considerably.  Nevertheless, the practice is still widespread in some parts of the world—notably, the Niger delta—because it is a cheaper option than investing in the technology necessary to capture, store and transport gases.

  • Natural resource curse

    The ‘natural resource curse’ refers to situations where the extraction of a country’s natural resource wealth causes widespread harm.  This is commonly said to result from political conflict over the resources, high inequality in the distribution of benefits, environmental pollution, corruption, weak government institutions unable or unwilling to manage the resources effectively, or a combination of all of these.  (See also, ‘Dutch Disease’)

  • Official Development Assistance

    This is the technical term for foreign aid, including both loans and grants. The Development Assistance Committee of the OECD (Organisation of Economic Cooperation and Development) defines what is allowed to count as aid, and gathers data on total aid flows, which it publishes on its website.

  • Oil majors

    This, in the oil industry and some media, is the term for describing the handful of very large oil companies engaged in all aspects of the industry, from exploration to selling refined products. Best known names are Chevron, ExxonMobil, Shell, Total and BP, but Brazil’s Petrobras, China’s Petrochina and CNOOC and Russia’s Lukoil and Gazprom are now operating in the same league.

  • Petroleum Fund, Stabilisation Fund, Sovereign Wealth Fund

    A fund, separate from government’s general budget, which receives part or all of the revenues from natural resources.  Norway, Chile and some oil producing countries in the Middle East have created such funds.   The money is invested, rather than spent, so that future generations will also have the opportunity to benefit from the present harvesting of natural resources.  Saving some of the revenues for future use also helps to reduce the risk of ‘Dutch Disease.’