International (Upstream) Petroleum Agreements. Negotiating a Petroleum Contract. Summary. What are the kinds of host State-investor agreements available and their characteristics. What are the arguments “for and against them”? Stabilization Clauses Unitisation Agreements
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WHAT IS A PSC/A?
“A contractual agreement between a contractor and a host government whereby the contractor bears all of the exploration costs and risks and the development and production costs in return for a stipulated share of the production resulting from this effort”
WHERE ARE PSC’S USED?
“All of the mechanisms, contractual or otherwise, which aim to subject the contract provisions to specific economic and legal conditions which the parties considered appropriate at the time that the contract was concluded”
For the investor
“contract language which freezes the provisions of a national system of law chosen as the law of the contract as to the date of the contract in order to prevent the application to the contract of any future alterations of this system” (Amoco International Finance v Iran)
If the host government adopts a measure subsequent to the conclusion of the petroleum contract in which the fiscal terms are stated, that is likely to have damaging consequences to the economic benefits for one or both of the parties, a re-balancing will take place.
TAKE OR PAY
“If an adjoining owner drills his own land and taps a deposit of oil or gas, extending under his neighbour’s field, so that it comes into his well, it becomes his property”
Thailand (1971 Petroleum Act):
Section 72. For the purpose of the conservation of petroleum resources or of good petroleum industry practice, in case where concessionaires have their production areas covering the same petroleum reservoir, the Minister shall have the power to require such concessionaires to produce petroleum under the unit operation.
Angola (1997 Production Sharing Agreement):
Art. 27(1). In the event of there being petroleum deposits, capable of commercially viable development which extends beyond the contract area, and where other entities have agreements for the exploration and production of petroleum with a similar unitization provision, SONANGOL may . . . require that the petroleum in those deposits should be developed and produced in mutual co-operation.
Indonesia (Government Decree 35, 2004)
A Contractor is required to conduct unitization if it is proven that its reservoir extends into another Contractor’s Work Area.
China (Model Contract 1995)
11.7 In the event of an oil field and/or gas field straddling a boundary, CNPC shall arrange for the contractor and the neighbouring parties to work out a unitized overall development program for such oilfield and to help negotiate the relevant provisions thereof