Overview of PSCs Baker McKenzie IBP.Final.pdf

Reduced to even a more basic level granting

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Reduced to even a more basic level, granting instruments: 1. Convey rights to oil and gas over a particular area, and 2. Reserve a share of production to the grantor.
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13 Granting Instrument Basics The next development after the oil and gas lease is the international Concession Contract (similar to the oil and gas lease). It provides for: - Area, - Royalty - Surface Rental and - Bonus.
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14 Granting Instrument Basics Early international Concession Contracts -covered extremely large areas (sometimes entire countries); and -gave the host government very little say-so in type, pace, and scope of operations. So, what happened?
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15 Global Shift Away from Concessions World War II ended; A rising wave of independence arose; Competition for foreign exploration acreage increased; The balance of power tilted in favor of the host country governments and; Indonesia enacted Law No. 44 in 1960 initiating ‘Contracts for Work’ ended the Concession era
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Introduction of the PSC
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17 History of PSCs
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18 Overview of Indonesian PSC Management in the hands of Pertamina Contractor has operational control in the field Work programs and budgets required Pertamina approval Major contracts and Plans for Development required Pertamina approval All assets owned by the State upon being placed in service
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19 Indonesia PSC IOC/Government Split reconfigured into: -Contractor gets cost reimbursement from all or most of production; -Contractor and Pertamina then split the remainder; and -Contractor pays income taxes.
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20 Indonesia PSC IOC takes title to the oil at the point of export. IOC only possess an economic right to its share of the oil or gas IOC does not have mineral rights nor mining rights
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21 What were the benefits of the PSC model? Management by Pertamina (PN). PN and PS Contractor on the same side of the fence PSC an educational tool More equitable cost recovery and sharing mechanism (40% CR and 65/35 split) Income taxes paid by PN for Contractor out of its share of production Title to all equipment with PN PN approval for Work Program, Budget and all major projects
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Production Sharing Contract Overview
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23 PSC Division of Take Investor Take Cost Recovery Investor Profit Oil Split Net of Royalty Net of Taxes Government Take Bonus Royalty Government Profit Oil Split Investor’s Taxes The main financial elements in a PSC system: Cost recovery; and Profit sharing Other potential assessments: Bonus;Royalty;Taxation; Other
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24 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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Current View of the World: Host Government Granting Instruments
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26 Typical Host Government Contracts Greater IOC Control Greater Gov Control Joint Ventures Royalty/Tax Production Sharing Hybrids Service Contracts Information from IHS CERA
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27 Granting Instruments Around the World Concession Service Contracts PSC Mix
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28 Who is Using PSCs Now?
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