Model Petroleum Agreement
The Government’s thinking regarding the nature of the contractual framework which it wishes to be considered at the time of negotiation, is reflected in the Model Petroleum Agreement, which is available for download. The model is part of the regulations of the Petroleum Mining Act and is designed to achieve its objectives. Hence the attraction of foreign capital and technology form the substratum of the scheme. A Petroleum Agreement has a term of 34 years duration if a commercial discovery takes place pursuant to it.
Contractual period
The size and location of the area to be included in a Petroleum Agreement is settled by negotiation but a maximum of 10,000 sq km per Agreement. The contractual period is divided into two phases – an exploration phase which last for nine years, unless the company terminates the agreement earlier, and a development and production phase which commences on the date on which commercial viability of the field is decided on by the company and continues until 34 years from the effective date – the commencement date of the Agreement.
Relinquishment
The acreage under the Agreement is subject to a relinquishment regime during the exploration phase. The current regime envisage that 40% of the acreage be relinquished at the end of the 3rd contract year, another 30% at the end of the 6th contract year and the rest, excluding any discoveries, at the end of the 9th contract year. Voluntary relinquishment is also permitted.
Work Programme
The framework for the work programme is formulated as a schedule to the Agreement. The actual work programme is left to be agreed during negotiation. The regime for work obligations envisages that the oil company will assume firm commitments to carry out the negotiated work programme and submit regular periodic reports to the government or its designated agency. Government attaches great importance to the drilling of wells during the exploration phase and so priority will be accorded to work programmes which emphasize this preference.
Discovery of Petroleum
Where a discovery of petroleum takes place, the decision as to whether or not the discovery is of commercial interest is left to the company. However, should there be a difference of views between the Government and the Company a procedure, which may include an independent evaluation by government, is provided for, to ensure a speedy and equitable solution.
The Model Petroleum Agreement envisages that soon (within six months) after the determination of the extent of a petroleum fields considered to be commercially viable by the company, a development plan will be submitted with respect thereto for consideration by the Government.
Natural Gas
The Model does not offer a full framework for the development of natural gas deposits. Instead it is envisaged that in the event natural gas deposit were to be discovered in commercial quantities, the terms and conditions for development and exploitations would be settled through negotiations between the government and the company, if the latter wishes to undertake developments. Currently government is working on a natural gas model contract.
Fiscal Regime
The fiscal package is also included in the Model Petroleum Agreement. The fiscal regime has been designed so as to create an attractive investment climate for international oil companies.
The terms are straight forward, based on modern petroleum taxation practices, and are sufficiently flexible to cater for all likely exploration, developments and production scenarios.
The Government's aim is to maintain a responsive economic and fiscal regime which will encourage the development of small and marginal fields and ensure a fair division of returns between the risk-taking investor and the government when an especially profitable field is developed.
The economic and fiscal terms are therefore such as to yield a flexible and progressive level of “Government Take”, with the actual amount of Take being determined by the profitability of the particular operations.