1. EXPERIENCE SHARING ON PETROLEUM AGREEMENTS Day 2 – Group 2 - PPDG
Dr. Pedro van Meurs
VAN MEURS CORPORATION
Coastal Tower #7, Punta Paitilla
Panama City, Panama
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2. MODEL PETROLEUM AGREEMENT
In this presentation I will focus on the variability required in order to adjust a model petroleum agreement to a wide variety of circumstances. This is due to variations in the resource base, economic and logistical conditions in the country and the policy framework the government is pursuing. Important questions need to be answered before finalizing a model petroleum agreement for any particular area. 2

3. THE PETROLEUM INDUSTRY FRAMEWORK
What is the role of the petroleum industry in the context of the Paris Agreement on climate change? -- The government just pays lip service to the Agreement, or -- The government is serious about implementing the Paris objectives. The latter policy will have a major impact on the details on the petroleum agreement, such as: -- field development plans -- fiscal and economic flexibility instead of stability (carbon taxes, subsidies) -- gas policies and pricing -- robust fiscal framework -- non-development of “undesirable” petroleum resources. 3

4. THE PETROLEUM RESOURCE BASE
What is the nature of the petroleum resource base for which the model petroleum agreement is being designed? Different resources require very different contracts in terms of fiscal and other commercial terms, such as for: -- high risk exploration for conventional petroleum in new areas -- low risk exploration in mature areas -- heavy oil development -- shale gas and shale oil, coalbed methane -- oil prone or gas prone areas -- high cost or low cost resources -- frontier, onshore, shallow water or deep water developments, or -- a large or small resource base. 4

5. THE NATIONAL ECONOMY
How do the petroleum resources relate to the national economy? Agreements tend to be different whether the country is an exporter or importer. If the country needs the petroleum for supplies to the national economy the creation of a viable midstream framework will be very important. An important decision is whether the agreement should: -- only relate to upstream operations, or -- upstream and midstream operations. What is the role of natural gas in the local economy? Depending on gas policies rather different gas clauses may be required in the model petroleum agreement. 5

6. THE ECONOMIC STRUCTURE
What should be the economic structure of the agreement? Is the government capable and wishes to co-invest with the investors through a national oil company? Is the government capable of providing significant tax support? Is the government capable or wishes to exercise detailed administrative cost control for cost recovery or resource tax provisions? Is the government in a position to share geological risk? Does the government want all or a share of the petroleum in kind? 6

7. THE ECONOMIC STRUCTURE
What should be the economic structure of the agreement? 7

8. THE FISCAL STRUCTURE
What should be the fiscal structure of the agreement? Should the government take (“GT0”) be higher with larger production volumes, higher prices, higher profits and/or lower costs? How important is early cash for government? Should fiscal terms be geological risk averse or risk supportive? Should fiscal terms encourage efficiency and discourage transfer pricing? Are marginal field development and the maximum economic recovery of reserves important? 8

9. THE FISCAL STRUCTURE
What should be the fiscal structure of the agreement? 9

10. THE TERM AND CONTRACT AREA
What should be the term of the model petroleum agreement? Should the agreement have a fixed duration divided in phases or should the agreement be renewed until the exhaustion and abandonment of the resources? What should be the renewal conditions? What should be the type of agreement area? Should the area be 2D or 3D? Should there be relinquishment provisions? Should there be exploration in parallel with production? 10

11. THE MANAGEMENT STRUCTURE
What should be the management structure? There is a wide variety of management structures for petroleum agreements, depending on government capabilities and policies, such as: -- creation of a joint stock company to manage the contract (Egypt) -- establishment of a management committee (as most PSCs) -- direct approval procedures by the government or independent regulator (as most concessions, licenses, leases and also PSCs). -- direct approval procedures by a national oil company -- joint operating agreements or joint stock companies (in case of NOC participation) -- combinations of two or more of the above. 11

12. CONCLUSION
It seems to me that a single model petroleum agreement to cover the wide range of petroleum resources, economic conditions and government policies would be a challenging task.
Mexico has succeeded in having a similar agreement for their license contracts and production sharing contracts, by creating special large annexes which are different for each type contract.
Two options are possible for a common PPDG petroleum agreement model:
An all purpose “Mega Annex” contract, whereby most of the commercial provisions are in annexes, which would be different depending on the choices, and
Countries which are in a very similar resource, economic and logistical position (such as some Island Nations in the Caribbean) could work on a single joint model. 12