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Practice Guide to Auditing Oil and Gas Revenues


Government Responsibilities in the Oil and Gas Sector

To be able to make sound scoping decisions for a performance audit of the oil and gas sector, auditors need to clearly understand the diversity and extent of government responsibilities in overseeing the sector.

These responsibilities can be separated into five categories:

  1. Evaluating oil and gas development options: This involves processes that help governments to make policy decisions on whether to develop a particular sector or not (for example, allowing natural gas extraction through “fracking” technology or the building of new pipelines), including environmental impact assessments, socio-economic impact assessments, strategic environmental assessments, and cumulative impact assessments. This process may also include, where relevant, the consideration of Aboriginal land claims and their impact on proposed developments.

  2. Ensuring the responsible development of natural resources: This involves putting in place laws and regulations that will set clear requirements that must be met by oil and gas companies to limit the impacts of oil and gas extraction on the environment and local communities. For example, regulations may prohibit certain extraction practices, set site remediation standards, or establish limits on the release of contaminants in the air, soil, and water.

  3. Monitoring natural resource extraction: This involves oversight activities carried out by government departments and agencies to ensure that oil and gas companies are in compliance with all applicable laws and regulations. This involves, among other tasks, conducting compliance inspections, issuing fines and remediation orders when necessary, and certifying that decommissioned extraction sites have been properly remediated.

  4. Collecting revenues from natural resource extraction: This involves setting rates and collecting all fees, leases, bonuses, penalties, and royalties related to the extraction of oil and gas, and conducting audits to ensure that all due payments have been received in full.

  5. Collecting financial assurances for site remediation and monitoring financial liabilities: This involves collecting financial assurances from leaseholders, assessing the adequacy and completeness of remediation plans submitted by private companies, monitoring progress on remediation work, attesting that remediated sites have met all applicable standards and requirements, and regularly updating estimates of future remediation costs.

These responsibilities are summarized in Figure 5. The topics listed in the last two columns of the diagram are covered in detail in this Practice Guide.

Figure 5

A Government's Responsibilities in the Oil and Gas Sector

A Government's Responsibilities in the Oil and Gas Sector