LLM 2013 Reading oil&gas contract law
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Transcript of LLM 2013 Reading oil&gas contract law
CRITICALLY DISCUSS HOW TO CHOOSE BETWEEN A SERVICE CONTRACT AND A JOINT VENTURE FOR A 50-250 MILLION
DOLLAR OIL AND GAS TRANSACTION. CITE EXAMPLES FROM AFRICA AND ASIA.
By:Emilios FrangosStephanie PolykarpouTope AjaoYasmin Ben UmarYiannis Philotheou
INTRODUCTION:• Joint Ventures and Service Contracts have both been chosen in the past for different
reasons in different countries.
• When deciding on what contract is most appropriate to use a number of factors have to be determined in order to make sure that the correct and most appropriate contract for the circumstances is applied. In order to achieve this a number of factors have to be examined. The following points are to be discussed in order to draw a conclusion during this presentation.
• How big is the transaction that is to be discussed?
• What is a Joint Venture
• What is a Service Contract
• What are the advantages and disadvantages of each.
• Examples of application of each individual contract in different countries.
JOINT VENTURES: THE DEVELOPEMENT
• It developed when the Concession agreement disappeared.
• As a result of the Host countries not having an active role in their resources.
• The formation of OPEC
• UN resolution from 1952to 1966 aided its development(Principle of Permanent Sovereignty)
PHASES OF A JOINT VENTURE
• Planning : this defines commercial rationale and identifies partners.
• Formation :here legal and commercial structures are built.
• Operation: joint venture are operated and managed on an ongoing basis.
• Dissolution: it involves winding up of JV.
LEGAL VEHICLES FOR FORMING A JOINT VENTURE:
• Contractual Joint Venture: here no separate legal entity is formed and it purely a contract.
• Joint Venture Corporation: here legal affairs is incorporated. JV governed by corporation law of relevant state.
• Joint Venture Partnership: governed by partnership laws of relevant state. It can either be written or oral but usually written in the oil and gas industry.
ADVANTAGES OF JVS ON PART OF GOVERNMENT.
• It is not alone in the decision making and responsibility for project.
• It counts on the expertise of a Major Oil Company.
• Shares profits and remunerations like taxes and royalties
DISADVANTAGES FOR GOVERNMENT.
• Risks and cost are also shared.
• Responsibility comes with potential liability including environmental damage.
• It takes a long time to negotiate.
• It requires more legal advice from exerts in petroleum contracts which will cost more for both parties.
SERVICE CONTRACTS:
• Private company perform services for the government
• Contractor provides all capital
• Is exploration is successful the costs are recovered
• All production belongs to the government
• Contractor bears all the risks
SERVICE CONTRACTS CONTINUED.• Types of Service Contracts:
• Risk service contracts
• Pure service contracts
• Technical assistance contracts
• Why service contracts?
• Government has greater control over the project
• The contracting company does not share any profit oil
• For small reserves.
EXAMPLES OF RISK SERVICE CONTRACTS IN ASIA AND AFRICA
EXAMPLES OF SERVICE CONTRACTS IN ASIA:
• Coastal Energy Company committed itself to a Risk Service Contract in Malaysia with respect to 3 marginal fields involving 320million dollars for 3years
• See Coastal Energy Company presentation: Malaysian Risk Service Contracts(July 2012)
• (http://www.coastalenergy.com/operations/offshore-malaysia.)
EXAMPLES OF SERVICE CONTRACTS IN AFRICA
• Agip committed itself to service contract in Agbara field and Okono/okpoho fields in Nigeria
• Nigeria Field Trip: Claudio Descalzi Senior Vice President for Operations Italy, Africa and Middle East E&P Division (October 2002)
EXAMPLES OF SERVICE CONTRACTS IN ASIA
• Risk service contracts are called buyback contracts in Iran.
• In march 1995, a buyback contract was awarded to Conoco for the development of the offshore Sirri A and E fields.
• HOW COMPETITIVE IS THE IRANIAN BUY-BACK CONTRACTS IN COMPARISON TO CONTRACTUAL PRODUCTION SHARING FISCAL SYSTEMS? HOOMAN FARNEJAD∗
CONCLUSION:• As International Oil Company:
• Service contracts seem to be more appropriate for the given circumstances
• This has been decided on the following factors:
• That setting up a joint venture would be way to expensive for such a relatively small deal. Cost of expert legal advice and time spent between IOCs to know each other would make service contracts a more easily acceptable choice.
• Basically the cost involved in a modern day oil and gas joint venture deal surpasses 100million dollars. For example, Shell Nigeria (shell petroleum development company) from the year 2006 – 2010 has contributed at least 31billion dollars in respect to its JV agreement with Nigeria.
As a Host Country
• In recent times, a service contract can easily apply to such a transaction involving such an amount. As usual, a host country would still be happy to see the IOCs bear all the risk involved.
REFERENCES
Contracting and regulatory issues in the oil and gas and metallic minerals industries
• Michael Likosky
• http://archive.unctad.org/en/docs/diaeiia20097a1_en.pdf
• The ABCs of Petroleum Contracts: License-Concession Agreements, Joint Ventures, and Production-sharing Agreements
• Jenik Radon
• http://openoil.net/wp/wp-content/uploads/2011/12/Chapter-3-reading-material1.pdf
• Joint Venture Contracts (JVCs) among Current Negotiated Petroleum Contracts: A Literature Review of JVCs Development, Concept and Elements by Talal Al Emadi
• https://www.law.georgetown.edu/academics/law-journals/gjil/upload/6-al-emadiFIXED.pdf.