International Petroleum Agreements

One of the concerns of companies is the risk of a retroactive amendment of the agreements to their detriment. This fear is due to the history of the industry and perhaps to the fact that simple agreements are not able to obtain significant capital gains from oil. This paper attempts to show that the more ambitious agreements that are now available no longer justify such disruptive changes. The mere removal of this uncertainty should encourage further investment. During years of oil shortages and high prices (particularly in 1979 and 1980), international oil companies (IOCs) fought hard with each other and were forced to accept very difficult conditions, even in slightly attractive prospects. 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. Oil and gas exploration only takes place if an agreement has been reached on the conditions governing the sharing of risk and reward between an oil company and its host government. This agreement often requires lengthy negotiations. The aim of this document is to improve the parties` understanding of the impact of the variables involved. A better understanding should improve the efficiency with which companies and governments conclude such agreements. ”Tax aspects” refer to mechanisms that have a direct impact on the amount and date of a government and a company`s share of project revenues. A ”project” refers to a company`s decision to invest in both exploration and development of each discovery. These mechanisms can be defined by legislation, specific licensing agreements or government decisions concerning oil companies.