Types Of Oil And Gas Agreements

Tender agreements generally concern border or offshore areas where unleased public sector oil and gas interests may become desirable for a group of companies that share the high costs of auctioning and wish to offer them as a group. The group may have been created as a result of joint exploration and/or development activities, or it may simply be a case in which a financial party wishes to propose with an industrial partner or a more competent partner. These agreements can be extremely complex in terms of the methodology used to determine bids, with whom and when, as well as in the preparation of a competitive leasing sale. Post-sale participation formulas can also be complex. Federal and regional cartel and other collusion sanctions laws continue to refine procedures. Due to the diversity of ownership of oil and gas interests and/or the need to share economic risks, the oil and gas industry has entered into a number of different contractual agreements. The most common types of contracts are farm outs-farm-ins or commercial well agreements and common enterprise agreements. This did not result in delays, postponements or investments expected immediately. This was clearly contrary to the interests of host governments. Treaties do not provide for waivers of unexplored areas.

Other more traditional concession agreements have granted the IOC « in situ » oil, with market and price powers. Royalties were flat or fixed for unit rates and were sometimes credited with income tax. There was no or little signing bonus and sometimes no income tax. These conditions have often been « frozen » for the duration of the agreement. The main differences between land and land agreements are the penalties (higher because of the costs and risk than in the field) for non-authorization operations and the number of approval or non-acceptance points for future high-cost transactions. In addition, many changes to the nomenclature are necessary to reflect the different operational activities induced by a marine environment. Due to the intensive regulation of the federal state and the federal states, other factors complicate agreements at sea, such as environmental control, compliance with non-discriminatory practices imposed by the federal government, and the various provisions necessary to deal with potential disasters that affect the protection of insurance and liability. Risk service agreements are the least used type of contract among the three listed here. They have been used by states that have a nationalist approach, or by countries like Venezuela, Iran or Iraq, which have long had oil production. Under this type of agreement, the host Member State is merely terminating the service of an oil company or consortium in order to benefit from its financial and technical know-how.

The company or consortium assumes risk and responsibility and is reimbursed by a service fee that is usually paid in cash. An example of this type of agreement is the absence of Iran`s buy-out agreements, which have proved too painful to be considered by a private investor. Under concession agreements (or licenses), the selected refining company or consortium conducts exploration activities. The company takes over all of the production, when it is extracted, in return for the payment of a royalty to the host state. Royalties could be in cash or in kind. It could also take the form of a income tax or other types of fees and contributions, possibly including an additional income tax, if it exceeds a pre-defined threshold.