Overview of PSCs Baker McKenzie IBP.Final.pdf

A discovery which is potentially commercial when

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“a Discovery which is potentially commercial when taking into account all technical, operational, commercial and financial data collected when carrying out appraisal works or similar operations, including…” – Iraq – Kurdistan PSC “the finding, during Petroleum Operations, of a deposit of Petroleum not previously known to have existed, which can be recovered at the surface in a flow measurable by petroleum industry testing methods.” – India PSC
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57 Commercial Discovery Who decides Commerciality? Host Government Oil Companies Management Committee
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58 Commercial Discovery: Indonesia 2.4 If Petroleum is discovered in any portion of the Contract Area within the initial six (6) years period, or the extension thereto, which in the judgment of PERTAMINA and CONTRACTOR can be produced commercially,
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59 Commercial Discovery: China Article 11: -Contractor submits an Overall Development Program to the JMC. -If JMC approves, it forwards the Overall Development Program to the state oil company. -The state oil company submits it to the competent authorities of the Chinese government for review and approval.
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60 Commercial Discovery: Nigeria 5.1(c) CONTRACTOR shall have a period of one (1) year from completion of the appraisal of a Discovery to declare whether the appraised Discovery is of a Commercial Quantity. 5.3 All classification and work programme shall receive the consent of the Department prior to taking effect in line with current petroleum legislations and regulations.
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61 Commercial Discovery: EG 5.4 The Contractor shall determine whether it considers that a Discovery can be developed commercially. 5.5 The Contractor shall submit a Development and Production Plan to the Ministry. 5.6 If the Contractor and the Ministry do not agree on a plan, there will be no development.
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62 Key Provisions in PSCs Minimum Work Obligation Local Content Bonus & Taxes Cost Recovery Relinquishment Commercial Discovery Term Stabilization Management and Control
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63 Production Allocation Diagram Gross Production Profit Oil Cost Recovery Oil NOC’s Share of Profit Oil Contractor’s Share Profit Oil Contractor Net Profit Contractor’s Taxes
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64 Cost Recovery Oil IOC finances 100% of the cost IOC Assumes 100% risk IOC receives a predetermined portion of production ° “Cost Oil”
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65 Cost Recovery Oil What costs are recoverable? Exploration Appraisal Development Operating Many host governments impose a cap on cost recovery Inverse relationship between cost recovery and royalty
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66 Classic Cost Recovery Provisions Cost recovery is the rate at which the contractor recovers its investment costs Most PSCs allow contractors to recover investment costs subject to a ceiling, usually expressed as a percentage of gross production (or gross production less royalty) in any one year Partial recovery of costs, State reserves some profit oil each year Contrast to Concession/License Regime where no tax is paid until a project becomes profitable
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  • Winter '14
  • Bijay K Behra
  • contractor, Petroleum industry

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