2012 AAPL Annual Meeting Sponsors. Platinum. Gold. Silver. Bronze. San Francisco Seminar. Golf. A wholly owned subsidiary of ExxonMobil. International Negotiations “In the beginning and Beyond”. 58 th Annual Meeting - San Francisco June 13-16, 2012. W.B. Phillips
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2012 AAPL Annual Meeting Sponsors Platinum Gold Silver Bronze San Francisco Seminar Golf A wholly owned subsidiary of ExxonMobil
International Negotiations “In the beginning and Beyond” 58th Annual Meeting - San Francisco June 13-16, 2012 W.B. Phillips US Exploration Land Manager Hunt Oil Company John Blair Assistant General Counsel Hunt Oil Company
Hey Bob, I got a great deal on some acreage that Petrobras is going to let expire. What do you know about international farmouts?
Going To Rio Shoot!, he doesn’t know anything! He doesn’t know anything either!
How to Start • First, take a deep breath • Do as much homework as possible and find out as much as you can about: • The deal • Your partners • The host country • Is your passport current and will you need a VISA • Find an expert(s) you and one your company can trust • Get one here in the US and one in the country where the deal is • Use your domestic experiences, but be careful about comparisons
Do’s and Don'ts • Do: • Do your homework first • Recognize others national pride • Think outside the box • Join the AIPN • Don’t: • Think you are smarter (than they are) • Think you know it all (you don’t) • Try to buy goodwill (there may be laws against it)
General Comparison’s DomesticInternational Laws: Common law Common law Civil law Civil law Case law Case law Legislative Legislative Tax law Tax law Mineral ownership: Fee State Federal Federal Note: the vast majority of foreign mineral ownership is held by the national governments
General Comparison’s DomesticInternational Type ownership: Fee yes yes (varies) State yes (DNR,GLO, etc.) yes Federal yes (BLM, BOEM) yes (old MMS) Type of Mineral Lease granted: Fee oil & gas lease Production sharing Agmt. State oil & gas lease License or Federal oil & gas lease concession, (you pay all tax and royalty) risk service contract and hybrid of all the above Government participation: no often and thru state owned company
General Comparison’s DomesticInternational Signing authority: company officer, AIF Head of State, Oil Minister Types of contracts (between WI owners): AAPL JOA, AIPN JOA farmouts farmouts JV’s JV’s Handshakes MOU’s, MOA’s Hybrid Hybrid see next page ORRI and Net Profits recognized: Yes Yes, no, maybe, don’t understand
Types of Contracts Specified by Legislation • License • Similar to oil and gas lease. • Licensee receives all sales , LESS royalty and taxes • Production Sharing Agreement • Contractor received negotiated % of production (less costs) and negotiated % of balance of profits • Risk Service Contract • Contractor negotiates % of production less costs compensated for risks • Service Contract • Contractor receives negotiated payment regardless of success
Primer on Host Government Contracts (HGC) • How do you become competitive? • Three basic forms of HGC • Service contract - Example Iraq • Concession or License– Tax and Royalty • Production Sharing Agreement (PSA) – cost oil/share oil • HGC is the law • National interests • Subsequent amendments; political risks • Title to oil and gas under a Concession/PSA • Understand what is covered • Title passes at point of delivery • Money flow
Compare Featrures of Concession/PSA to Domestic Oil and Gas Leases • Term • Fixed periods – no habendum clauses • Exploration phases – off ramps • Development period fixed term for commercial production (20-25 years) • Work Commitments • Competitive just like domestic bonus and royalty • Each phase includes a commitment to do the minimum required (work v. $$); carry forward rights; may require acreage relinquishments • Competing interests of HG and Oil Company • Data collection • Commercial production • Limited capital • Relinquishment issues
Compare Featrures of Concession/PSA to Domestic Oil and Gas Leases • HG as Partner • Carried interests to commercial production – may be option to elect; 5% to 20 % • Operating committee • Chaired by representative of HG as JOA partner; sovereign issues • Training • Significant issue to train and employ local labor • Key control positions required • Arbitration • How to resolve disagreements
Odd’s and In’s • Fracing bans • Things you normally don’t think of • Political risks • Summary
Fracing Ban’s (it’s not only a US problem) • France New York • New South Wales • West Virginia
Things you normally don’t think of • Will my credit card work? • Will I need cash and if so in what currency? • Will my cellphone or iPad work? (Do you want to take it?) • Does my company have the right insurance? • Will I need a VISA? • Should I drive? • Answer – NO, NO , NO! • Can I take pictures?
Things you normally don’t think of • Labors Laws • Physical access • Boundary disputes • Nationalization (Venezuela) • Local Counsel availability • Foreign Corrupt Practices Act implications • Signatures often require “board” resolutions and what’s an “apostele”?
Things you normally don’t think of • What is the weather like? • Do I know where I am going? • Where am I staying? • Will my plug in’s work? • What can I take with me? (and what can I bring back?)
Political Risk • Political Risk • Where is the closest US Embassy? • Do I have their contact information?
Summary • Find out as much as possible about the deal and where it is • Review all the facts with your expert, and then with your management • Don’t let the romance of the dealget in the way of good business judgment • If you go forward maintain an acute situational awareness of all aspects of the opportunity and where you physically are • Have fun and learn as much as you can!
Political Risk Run Amuck • Do I need personal security?
Man, I am glad I attended the AAPL Education seminar on International Trades!