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1、4 . 3 International ContractsIn the last section, we discussed the impact of the contract between the mineral owner and the oil company in the United States. In this section, we concentrate on the application of international contracts on the feasibility of field developments in other countries.,4 .
2、 3 International Contract,Over the last two decades, the emphasis in petroleum exploration has steadily shifted away from domestic oil industry and towards the international arena. The primary reason for this shift is the fact that more than 82% of the proven reserves lie outside the Western Hemisph
3、ere. The majority of the under explored and unexplored sedimentary basins (沉积盆地)of the world lie outside the United States. The probability of finding giant or large oil fields is much higher outside the United States than within the United States.,Over the last two decades, the,The probability of f
4、inding giant or large oil fields is much higher outside the United States than within the United States. Hydrocarbon finding costs in mature basins of the United States are much higher than many other counties. See Figure 4.1 which compares the finding costs in the United States with many other coun
5、tries. These technological advantages outside the United States, when coupled with the stringent environmental and other regulations in the United States, make the investments in other countries even more attractive.,The probability of finding gia,Figure 4.1: Hydrocarbon finding costs in the U.S. ve
6、rsus other countries (after Bertagne),Figure 4.1: Hydrocarbon find,This section will discuss various contracts used between the host country and the international oil companies to proceed with the exploration and development of potential hydrocarbon reserves. It is important to remember that the obj
7、ectives of the host country and the international oil company can differ significantly. Most countries are afraid of exploitation, pollution, loss of national pride, and the repetition of the recent history at the hands of the western civilization. The host countries like to be treated as equal and
8、be part of the development of their own mineral resources so that it will benefit the entire population of the host country.,This section will discuss vari,On the other hand, the international oil companies are afraid of changing tax rules, expropriation(征用) of oil and other assets, nationalization
9、of a private company, and political uncertainties. The oil companies main interest is economical. They would like to produce the hydrocarbons in the most optional fashion so that they can maximize the benefits. To structure a contract between these two parties which will create a win-win situation f
10、or both the parties is a challenging task. The solution is the various types of contracts which have evolved over the last thirty years which try to balance the interest of both the host country and the international oil company.,On the other hand, the interna,In the first part of this section, we w
11、ill discuss the background of international contracts which led to the development of modern contracts. In the next part, we present the purpose of each of the parties involved in the contract so that the understanding of the terms in the contracts becomes easy. In the next three parts we illustrate
12、 the three types of contracts which are most commonly used.,In the first part of this sect,These types of contracts are concession agreements, production sharing contracts and service contracts. Concession agreements require the least involvement of host countries; whereas, the service contracts req
13、uire the most involvement of the host countries. We will discuss both the advantages and disadvantages of these contracts and illustrate the applications of these contracts with several examples.,These types of contracts are c,4.3.1 HistoryThe early history of the world oil concessions is mostly dic
14、tated by the results of the two world wars. The oil companies from the victors of the two world wars largely controlled the oil production in the world. Specifically, seven sisters (Exxon, Mobil, Chevron, Shell, Gulf now a part of Chevron, Texaco and British Petroleum) dominated the worlds oil reser
15、ves as well as transportation, refining and marketing of petroleum.,4.3.1 History,Realizing the increasing importance of oil in the modem world, many of the seven sisters signed contracts with the rulers of the host countries to acquire the rights to explore for and produce hydrocarbons from these c
16、ountries. Although the original contracts differed from one another, many of these contracts contained some common features.,Realizing the increasing impor,These features are:* Definition of area which described the physical boundaries. Oil companies had the right to explore for and develop these ar
17、eas.* Minimum amount of drilling required over a period of time till hydrocarbons are found in commercial quantities.* Duration of the agreement between 60-75 years.* Financial obligations of company which include signing bonus, annual rental fee and royalties for each barrel of oil produced.* Provi
18、sion(规定） to supply domestic oil requirements to the host country at some predetermined cost(预计成本).* Other rights such as freedom of taxation or production controls.,These features are:,These contracts were largely based on the oil and gas leases typically signed between the mineral owner and the oil
19、 company in the United States. For example, a contract between SOCAL (now Chevron) and King of Saudi Arabia covered an area of approximately 500,000 miles over a sixty-six year term. Ruler of Abu Dhabi granted a seventy-five year concession to a consortium of oil companies covering the entire countr
20、y. Similarly, the Kuwait concession was over a seventy- five year period covering the entire country.,These contracts were largely b,In these agreements, the host countries did not participate in managerial(管理) decisions. Sole benefit received by the host countries is the royalties. In many contract
21、s, the royalties were fixed at a flat rate(统一费率) per barrel of oil rather than based on the sale price. Even when the royalties are based on the sale price, the oil price was primarily set by the oil companies. Since many concessions were held(控制) by the consortia of oil companies, by making joint o
22、ff-take agreements, the total production from virtually all major concessions could be controlled. This, in turn, controlled the price of the oil and hence the royalty payments.,In these agreements, the host,Many host countries started realizing the drawbacks of these traditional agreements. The maj
23、or problem being the lack of control over the exploitation of minerals on their own sovereign(统治) land. Venezuela demanded that the oil contracts be revised to allow for higher royalties and taxes in return for a forty year renewal. In 1948, Venezuela passed a law that established the Venezuelan gov
24、ernment as a partner with the multinational(跨国) oil companies.,Many host countries started re,In Mexico, the oil companies were granted virtual ownership in the oil produced from the concession without any term limit. This changed in 1917 with change in Mexican Constitution which explicitly granted
25、the ownership of natural resources to the Mexican government. Over the next twenty years, the Mexican government imposed new taxes which oil companies refused to pay. This led to increasing disputes between the two parties. Eventually, in 1938, the government announced expropriation of the oil indus
26、try, transferring the production to its national oil company, Pemex.,In Mexico, the oil companies,Argentina approached the problem of dealing with international companies in a different way. Argentina was the first country to establish a national oil company, YPF (Yacimientos Petroliferos Fiscales A
27、grentinos). YPF slowly started capturing the domestic retail gasoline market. Further, the government started granting exclusive rights to YPF to explore for and produce hydrocarbons from new territories. The multinational oil companies started losing interest since they were unable to explore for n
28、ew production.,Argentina approached the probl,Most countries in the Middle East resorted to re-negotiation of the original contracts to secure more favorable terms. Several factors contributed to re-negotiation of these contracts. First, the emergence of small or medium size oil companies which were
29、 not part of the seven sisters. To compete with the seven sisters these companies were willing to provide more favorable terms to the host countries. Second, several oil producing countries joined together to form the Organization of Petroleum Exporting Countries (OPEC).,Most countries in the Middle
30、 E,The existence of one entity representing the interests of many countries helped coordinate efforts to re-negotiate the original contracts. OPEC also facilitated sharing of information between different countries helping them to re-negotiate contracts with more favorable terms. It also become incr
31、easingly obvious that it is unfair to tie royalties of individual countries to the posted prices controlled by the seven sisters. By the end of the 1970s, the majority of the Middle Eastern OPEC countries nationalized their petroleum industries.,The existence of one entity re,During the 1970s and 19
32、80s, producing countries outside OPEC increasingly demanded better terms in the contracts between the host country or its nationalized oil company and the international oil company. The oil prices where high and the areas where the international oil companies can explore were limited. This resulted
33、in significant oil production outside the OPEC and resulted in decreasing share of the OPEC countries in the worldwide production. Eventually, in 1985, OPEC abandoned its effort to control oil prices. Instead, it targeted certain percentage of the worlds share of oil production. This resulted in a c
34、ollapse of the oil price.,During the 1970s and 1980s,With lowering of oil price and opening of new countries such as Russia and Vietnam, the international contracts are further evolved. To attract foreign investment, many host countries are offering more favorable terms to the international oil comp
35、anies. This has resulted in changes in some terms of the international contracts. Overall, however, the three types of contracts have emerged as the most commonly used types of international contracts. What type of contracts a host country uses depends on its objectives. In the next part, we will di
36、scuss the type of objectives the host countries normally want to achieve in signing an international contract.,With lowering of oil price and,4.3.2 ObjectivesIn signing a contract between a host country and an international oil company, both parties want to achieve certain objectives. Independent of
37、 the type of contract which is signed between the two parties, both parties try to satisfy most of the objectives. To understand the terms included in the contract, it is important to consider the objectives of the parties involved in the contract.,4.3.2 Objectives,Objectives Of The Host Country The
38、 objectives of the host country can be divided into three broad categories; financial, political and technical. Each of these objectives are described below.* FinancialBy inviting an international oil company to explore for and produce hydrocarbons, the host country can eliminate, or at least, minim
39、ize the initial capital investment. If the project is successful, by ensuring appropriate terms in the contract, the host country can secure significant amount of financial benefits from the production of hydrocarbons. These benefits can be reinvested in other similar or different projects of nation
40、al interest.,Objectives Of The Host Country,* PoliticalMost of the developing countries have been previously colonized by Western countries. Awarding contracts to international oil companies is a sensitive issue and involves a national pride. To overcome this foreign dependence, the host countries w
41、ould like to maintain control over the operations of the project as well as the hydrocarbons produced as a result of the contract. Instead of being passive beneficiaries, the host countries would prefer to play an active role in the field developments so that the natural resources are optimally expl
42、oited to the countrys benefit. Further, by controlling the hydrocarbon production, the country may be able to influence desired foreign policy goals. It can also reduce the imports and gain economic efficiency.,* Political,* TechnicalBy signing a contract with an international oil company, the host
43、country can benefit from the technical expertise within the oil company. This will not only reduce the risk in the exploration efforts, but also will utilize the latest technology in the development of the oil field.In addition, the host country will also like to gain technological independence so t
44、hat, eventually, the future fields can be discovered using local talent and local companies. Therefore, the host country will prefer that the international oil companies hire domestic force, provide education grants and local R&D effort, and transfer technology to the local talent. In addition, the
45、companies should also prefer the local companies for the outside contracts.,* Technical,Objectives Of International Oil CompaniesSimilar to the objectives of host countries, the objectives of international oil companies can be described in three broad categories: financial, operational and political
46、.,Objectives Of International Oi,* FinancialThe companies would like to maximize their benefit with minimum amount of cost. They will also prefer that the initial investment be recovered as soon as possible (short pay back period) so as to minimize the impact of any political uncertainties. The comp
47、anies also prefer that the revenue generated can be repatriated(返回国内) and their share of crude can be sold in the open world market.,* Financial,* OperationalThe international oil companies prefer to have an operational control over the project. Rather than sharing the operational responsibilities w
48、ith some bureaucratic agency(官僚当局), they will prefer to operate the field so as to preserve the economics. The international oil companies fear that by sharing controls with a host country or its wholly owned subsidiary(辅助的), the production decisions may be made based on domestic political considera
49、tions rather than sound economics.,* Operational,* PoliticalThe international oil companies realize that their existence depends on the ability to explore for and produce hydrocarbons from host countrys sovereign land. It is, therefore, important that good working relationship be maintained with the
50、 host country and the local community so that the company can secure additional concessions when awarded. The company, therefore, is willing to spend resources on the development of local communities as well as local talent.,* Political,On the other hand, the companies want to be careful as to what
