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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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2.How exploration groups are put together
There are other types of companies such as JV
limited by guarantee, joint ventures limited by
guarantee with partners holding sharesJV Cont.
joint ventures, floats, operators, non-operators
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 .
joint ventures, floats, operators, non-operators
Operators
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2.How exploration groups are put together
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.
joint ventures, floats, operators, non-operators
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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How companies acquire exploration acreagepermits, gazettals, open acreage, bidding, work programs, farm ins, joint ventures
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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How companies acquire exploration acreagepermits, gazettals, open acreage, bidding, work programs, farm ins, joint ventures
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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