Basic Concepts of Acreage Acquisition and Legal Aspects

7/28/2019 Basic Concepts of Acreage Acquisition and Legal Aspects

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Introduction to Upstream Oil and Gas Training

I4TH 16TH May 2013, Intercontinental Hotel, Nairobi

Basic concepts of acreage acquisition and legal aspects

Philip M. Tsar

(Petroleum Engineer National Oil Corporation - Kenya) 1


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Scope

Basic concepts of acreage acquisitionand legal aspects:

Constituting of exploration groups,

Acquisition of exploration acreage

(permits, gazettals, open acreage,

bidding, work programs, farmins, joint

ventures)

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Background & Introduction

Kenya has been exploring for oil since 1937

Current framework (Petroleum Act and Model

Production Sharing Contract (PSC)) was developed

prior to discoveries; Model PSC is oil-centric

2012 discoveries in Turkana and gas-prone offshore

highlighted need to modernize existing framework

GoK and World Bank engaged Hunton & Williams andChallenge Energy (Consultant) to review and provideguidance for updating the existing framework

Background of Legal and RegulatoryFramework

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1. Petroleum Sector StructureLicensing/Contract Award

Minister publishes block availability

Contractors submit applications First come, first served negotiations with Contractors

Appropriate prior to significant discoveries due to relative lack of

competition

Current ApproachDirect Negotiation

Recommended ApproachPublic Tendering

Following discoveries, more Contractors have become interested More competitive environment makes public tendering viable

Government likely able to secure more favorable terms throughcompetition

Recommend direct negotiation still be available in limitedcircumstances (e.g., failed tender due to lack of bids)subject to

safeguards against corruption or the appearance of corruption (e.g.,public notice prior to commencement of direct negotiation)

Recommend bid parameters include cost petroleum cap and R-Factor sharing percentages.

Recommend that bidders be required to pass a pre-qualificationstage prior to bidding

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2.How exploration groups are put together

A JV- is a business agreement in which the partiesagree to develop, for a finite time, a new entity and

new assets by contributing equity.

They exercise control over the enterprise and

consequently share revenues, expenses and assets.

With individuals, when two or more persons come

together to form a temporary partnership for thepurpose of carrying out a particular project, such

partnership can also be called a joint venture where

the parties are "co-venturers" .

The venture can be for one specific project only -

when the JV is referred to more correctly as a

consortium(as the building of the Channel Tunnel) -or a continuing business relationship. The consortium

JV (also known as a cooperative agreement) is

formed where one party seeks technological

expertise or technical service arrangements,

franchise and brand use agreements, management

contracts, rental agreements, for one-time contracts.The JV is dissolved when that goal is reached.

joint ventures, floats, operators, non-operators

Joint Ventures

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There are other types of companies such as JV

limited by guarantee, joint ventures limited by

guarantee with partners holding sharesJV Cont.


Some companies capitalize on lucrative

market conditions for a share issue,"

The money raised is used to fund the capital

needs of its exploration and Appraisal arm

Floats

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2.How exploration groups are put together It i s common practice i n the oil and gas industry for

joint owners of working interests to designate oneowner as the "operator" of their properties . For this

purpose "operator" is considered to be the person who

bears the most responsibility for the management and

day to day activities of drilling, completing and

operating the wells .

Normally, the operator performs his/her tasks andduties in accordance with an operating agreement that

all joint owners have endorsed.

The operator manages the drilling, completing, and

operating efforts on the property; pays all expenses ;

and bills each joint owner for his/her share of the

expenses .

The operator is usually from one to six months behind

in billing to the several joint owners .


Operators

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An agency relationship exists between the

operator and the non operator, and the

timing of the deduction to the non operator

is an important item.


Non Operators

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How companies acquire exploration acreage

(law) a document that states some

contractual relationship or grants someright; licence to exploration block.

permits, gazettals, open acreage, bidding, work programs, farm ins, joint ventures

Permits

Under this policy, companies can choose

any block for offer at any time withoutwaiting for the regular bids rounds and

blocks can be awarded based on the best

bid at any time of the year.

Open Acreage

Bidding is an offer (often competitive) of

setting a price one is willing to pay for

something.

A price offer is called a bid. The term may be

used in context ofauctions, stock exchange,

card games, or real estate.

Bidding

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How companies acquire exploration acreage

Encouraging petroleum exploration is a high

priority for the GoK.

The annual release of onshore/offshore

petroleum exploration acreage should be

key part of the GoKs strategy to further

petroleum exploration in Kenyas blocks.

The release enables industry to undertake

longer term planning, provides certainty in

the release process, ensures access to

comprehensive pre-competitive geological

and geophysical data, and ensures the

provision of quality information about issues

that may impact on successful applicants.

permits, gazettals, open acreage, bidding, work programs, farm ins, joint ventures

Gazettals

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How companies acquire exploration acreagepermits, gazettals, open acreage, bidding, work programs, farm ins, joint ventures

The oil industry term for deals where a

company, not at present a licensee on a

particular licensed area, can acquire an interest

from one of the existing licensees.

The transfers of interest are generally made in

return for exploration or other commitments, for

exchanges of licence interests, or for cash".

Farming-in is a way of acquiring a licence

interest and, conversely, farming-out is a way of

disposing of a licence interest

Farm ins

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A JV is a cooperative enterprise entered into by

two or more business entities. Sometimes the JV

creates a separate corporation, ltd liability Co, or

partnership.

In other cases the individual entities retain their

individuality and they operate under a JV

agreement. In any case the parties in the JV

share in the management, profits and losses, as

per the contract.

JV ventures are often entered into for a single

purpose - a production or research activity but

may also be formed for a continuing purpose.

JointVentures

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If the application is for additional acreage for a

production licence in the initial phase, theremaining work programme and duration must begiven and it must give a short description ofcompleted, ongoing and planned work in theexisting production licence, and how the plannedwork will include the additional acreage.

In those cases where there are no remainingwork commitments in the existing license whichwill involve exploration/drilling for resources in theadditional area, a work programme must beproposed for the additional acreage which

includes a plan for exploration and/or exploitationof the resource.

WorkProgram

s

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Thank you !!

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Basic Concepts of Acreage Acquisition and Legal Aspects

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