Draft contract for petroleum drilling published

Preferential treatment to local goods and services

Prequalified oil companies and the Petroleum Administration (PA) have published two drafts for each of the Tender Protocol and the Exploration and Production Agreement (EPA). Both drafts are not final and will possibly undergo modifications. Ministerial decrees are required for the ratification of both drafts.

The Tender Protocol involves drilling activities in ten blocks. The PA will announce by June 30 at least five blocks that will be listed for the exploration tender. Oil companies have already expressed interest in drilling in all ten blocks, a sign perceived as positive by the Ministry of Energy and Water (MoEW).

The deadline to submit bids is November 4. The Tender Protocol stated that no consortium should be awarded more than two blocks in each licensing round.
The technical proposal contains a description of the general concept, approach, and timing of proposed exploration work. The commercial proposal includes the maximum percentage of disposable petroleum and profit sharing, in-kind or cash.

The draft EPA includes mandatory specifications of the duration and phases of petroleum activities, drilling and production permits, and valuation and disposition of petroleum. The EPA outlines three phases: An exploration phase, a discovery and appraisal phase, and a development and production one.

The exploration phase is for a period of five years divided into two phases (three and two years respectively). At the end of first three years, each consortium will have to relinquish 25 percent of its block.

The discovery and appraisal phase requires consortiums to promptly report to the PA any discovery of natural gas or crude oil. If the discovered resources were commercial, an appraisal plan that includes an assessment of the reservoirs and the necessary testing should be put forth within six months of notifying the PA.

During the final phase, a development and production plan subject to government approval should be submitted. This phase includes a 25-year production phase and a five-year extension. After the production plan is approved, a production permit is given to the consortium. The permit includes a test production given for one year with possible renewal.

For a natural gas discovery, right holders must submit a gas infrastructure and marketing plan. This includes the pricing arrangements, identity of purchasers, projected volumes, and the expected State share of profit. If the discovery was for crude oil, and if no gas infrastructure and marketing plan was submitted, any associated natural gas shall be delivered to the State free of charge. Liquids may be extracted and sold while dry gas is delivered free to the state. Right holders must fund infrastructure up to the delivery point.

The state shall have priority rights to receive royalties and profit petroleum in the form of natural gas. It also has a right to purchase all or a portion of that gas for the domestic market.

Right holders are required to form a management committee. The committee’s meetings can be attended by PA members.

Preferential treatment should be given to local goods and services that are competitive with respect to quality, availability, and price. At least 80 percent of the employees of each right holder shall be local nationals. Right holders are also required to fund a training program for local personnel with a budget of $300,000 each year until the beginning of the production phase. They are also required to fund the training of public sector employees with a budget of $500,000 per year.

Termination of EPA is allowed in case of material damage or repeated breach, false information, lack of compliance with arbitration decision, insolvency, or Force Majeure that substantially disrupts operations for at least 24 months.