Petroleum Concession and Safety Rules

Presented by:
Syed Ali Naqi Shah K-15PG82
Mohammad Imran Saand K-15PG41
Shahzado Khan Buriro K-15PG64
Jhan Zaib Mallah K-15PG74
Asad Abbas Pirzada K-15PG75

Assigned by:
ENGR. GHULAM ABBAS QUMBRANI
(Assistant Professor)
DEPARTMENT OF PETROLEUM & NATURAL GAS ENGINEERING
MEHRAN UNIVERSITY OF ENGINEERING AND TECHNOLOGY SHAHEED ZULFIQAR ALI BHUTTO CAMPUS,
KHAIRPUR MIR’S.
1 OUTLINES/ CONTENTS
1 Introduction 5 Types of Agreements

2 Pillars of Oil & Gas

Regulatory Regimes
6 Comparative Analysis of
Agreements

3 Country’s Objectives for

Petroleum Development
7 Concession Agreements

4 Resource Exploitation 8 Risk and Safety Rules of

Concession Agreement

Petroleum Concession and Safety Rules

2 Introduction
• Petroleum is strategic material so the understanding of
agreements/fiscal systems for E&P is very important.

• There is no consistent approach to the establishment or

implementation of international agreements/fiscal systems.

• Each country establishes the type of agreements/fiscal systems

those best meet their sovereign need.

Petroleum Concession and Safety Rules

3 Petroleum Regime/Agreement
 petroleum regime or
agreement is the set of
rules governing the
relationship between the
state, and oil and gas
companies, and includes
the petroleum law,
regulations and host
government contracts (for
example, concessions, joint
ventures or production
sharing contracts).
Petroleum Concession and Safety Rules
4 Pillars of Oil & Gas Regulatory Regimes
A good Oil & Gas Regulatory Regime addresses certain
major regulatory issues in a satisfactory way:

• The Right to Monetize Resources

• Fiscal or Contract Stability
• Enforceability of Contract

A regulatory regime that fails on any one of these points

puts its “investment favorability” at risk

Petroleum Concession and Safety Rules

5

K15PG74

Petroleum Concession and Safety Rules

6
Country’s Objectives for7 Petroleum Development
Economic Agenda
• Accelerate exploration & exploitation of petroleum resources
• Invite Investments in E & P Sector
• Generate revenues from taxes and “take”
• Obtain technology transfer & “Know-how”
• Stimulate competition in the E & P sector
• Create employment and materials preference

Petroleum Concession and Safety Rules

 7

Political & Social Agenda

• Make NOCs competitive by providing a level playing field

• Respond to the Interests of Local Populations

• Protect & Preserve the Environment

Petroleum Concession and Safety Rules

8

K15PG64

Petroleum Concession and Safety Rules

 9 Approaches to Resource Exploitation

1. Many developed countries use unilateral licensing/leasing

approach.
2. Many developing countries use consensual approach and
prefer mining agreements.
3. Political will of host country to develop resources is key and
expressed through regulatory instruments, contractual
obligations, national policies and guidelines.

Petroleum Concession and Safety Rules

 10 Types of Agreements/Contracts
 Concessions(Contractor has exclusive rights to explore, develop, sell, and export oil/gas from
a specified area for a fixed period of time)
 Joint Ventures(Each Joint Venture partner pays/receives its share in proportion to its
Participating Interest.)
 Service Contracts(Contractor pays all exploration and development costs. Contractor
works under government’s mandate and is paid for its work)
 Production Sharing Contracts/Risk Sharing Contracts (Contractor finances
exploration and development. If successful, Contractor will recover its costs and earn a profit by
receiving a share of production then Royalty & Income Tax are applicable on that contractor.)
 Hybrids(Combinations of Concession/JV/PSC)

Petroleum Concession and Safety Rules

11 History of Contract/Agreements
Concession is originated from the E&P of petroleum in developing countries by
international oil companies, dated from late of 19th century-under political control of
European power.
Production sharing contract was first employed by Indonesian and a foreign oil
company in 1966-under antipathy of people for foreign company and desire to control
its national resources.
Service Contract was first introduced by Argentine government between 1958 and
1961 in three types : drilling, development, exploration/development financially
unstable to obtain most advanced technology.
Joint venture is introduced by Italian ENI and Egyptian and in 1957-to participate in
managerial decision.

Petroleum Concession and Safety Rules

12

Petroleum Concession and Safety Rules

13

K15PG75

Petroleum Concession and Safety Rules

14 Comparative Analysis of
Agreements/Contracts
TYPE OF CONTRACTOR GOVERNMENT
AGREEMENTS
CONCESSION ALL RISK REWARD IS A FUNCTION
ALL REWARD OF PRODUCTION & PRICE

JOINT VENTURE SHARE IN RISK & SHARE IN RISK &

REWARD REWARD

SERVICE CONTRACT NO RISK ALL RISK

ALL REWARD

PSC EXPLORATION RISK SHARE IN REWARD

SHARE IN REWARD

HYBRID MIXED MIXED

Petroleum Concession and Safety Rules
 15 Comparative Analysis of Agreements
TYPE OF EXCLUSIVE RIGHTS TO OWNERSHIP OF
AGREEMENTS EXPLORE AND PRODUCTION
PRODUCE

CONCESSION OPERATING COMPANY OPERATING COMPANY

JOINT VENTURE SHARED SHARED

SERVICE CONTRACT STATE THROUGH STATE
SERVICE COMPANY

PSC OPERATING COMPANY STATE

HYBRID MIXED MIXED

Petroleum Concession and Safety Rules

 16 Usage of Contract Types
TYPE OF AGREEMENTS NUMBER OF COUNTRIES
UTILIZING THIS TYPE

CONCESSION 59

JOINT VENTURE 31

SERVICE CONTRACT 3

PSC 40

HYBRID 16

Petroleum Concession and Safety Rules

 17 Usage of Contract Types
TYPE OF AGREEMENTS COUNTRIES UTILIZING

CONCESSION UK, US , Norway, Australia, Canada, Peru,

Namibia, Thailand, Sudan, Ecuador, Kuwait,
Bahamas
JOINT VENTURE Colombia, Cameroon, Netherlands, Pakistan

SERVICE CONTRACT Iran , Mexico & Oman

PSC Egypt, Yemen, Angola, Indonesia, India,

Bangladesh, Guatemala, Sri Lanka
HYBRID Libya, China, Malaysia, Kenya, Tanzania,
Gabon, Myanmar

Petroleum Concession and Safety Rules

18

K15PG41

Petroleum Concession and Safety Rules

 19 Concession Agreement

 Contractor has exclusive rights to explore, develop, sell, and

export oil/gas from a specified area for a fixed period of
time.
 “Equity” or “Royalty & Tax” structure
 Maximum control to Contractor
 Oldest & most widely used

Petroleum Concession and Safety Rules

 20 Concession

 Traditional concession is simple agreement consisted of only

royalty(12.5%)payment based on the tonnage of crude oil
produced in very large area with unreasonably long period.(50-
60yrs).
 Modern Concession grants a fixed period(exploration:3-5yrs,
exploitation :30-40yrs) and, Government revenue is deprived
mainly from royalties (11.5-14.5%) and net income
or taxes.

Petroleum Concession and Safety Rules

22 Cash Flows Under Concession Regime

Petroleum Concession and Safety Rules

 21 Concession Agreements
ADVANTAGES DISADVANTAGES

If production occurs, government earns royalties Government may not realize full
and/or profit tax. Both are based on the quantity potential through possible
produced and the price at which commodity is extensive exploration
sold

Successful bidder pays bidder price (usually Companies will be cautious in bidding for
license fee and/or signature bonus) uncertain returns in virgin/non-proven areas. Not
suitable for countries seeking extensive
exploratory inputs through bidding systems

Petroleum Concession and Safety Rules

 23 Risk in Model Concession Agreement

 Political Risk
 Financial Risk
 Operational Risk
 Safety & Usage Risks

So when any body wants concessional agreement from the

government then first he will check these risks in the project
then he will try to make an agreement.

Petroleum Concession and Safety Rules