International oil and gas law - Essay Example

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International Oil and Gas Law PG Coursework 2009-2010  [University] [Instructor Name] Table of Contents   Introduction                 Question A.         Question B. Question C. Conclusion             Bibliography              Introduction Oil development is an expensive activity, which requires massive resources and skillful workers…
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Download file to see previous pages This will start by explaining the types of agreement that the government can enter into when the current term with an oil development company called Noble Oil expires and the reasons why such type of agreement could be suitable. Also, following oil discovery in Amazia, the paper will discuss how the Urbania should go about oil development in that region as well as give an advice on which company the government should work with. Finally, the paper will discuss the various types and sources of finance that are available for Urbania, considering that the country does not have adequate resources to fund oil development projects. A. What type of agreement should Urbania enter into for continued development of, and production from, the Western Plateau region, when the current concession expires? Be sure to give reasons for your recommendation. There are several fundamental agreements that can be made between the government of Urbania and Nobel Oil Company including the Joint Venture Agreement, concession, service contract and production sharing agreement.1 The government can decide to continue with the current concession agreement if it wants to guarantee the ownership of the oil resources of the company that will be granted the license. Technically, this ownership is enjoyed in exchange for royalty, which is usually estimated at a fixed rate on the quantity of oil produced. In some situations, the company can also enjoy tax exceptions and reduced custom duties in exchange for the extraction rights. This agreement will present Nobel Oil with a long duration of agreement with the government of Urbania, and it will be difficult for the government to include a ‘lock in’ clause such that it will be hard for any party to pull out for whichever reason. Nevertheless, this type of agreement comes with some disadvantages. For instance, a concession is a long-term agreement, which is usually faced with problems related to adjustment of financial commitments as a result of unexpected circumstances. 2 It will also be a disadvantage on the side of the licensed company because it will be required to pay higher amount of pre-oil discovery fee, and following the discovery of oil, the company is likely to pay very high amounts of royalties as well as income tax. The current rate of royalty is 16%, which will somewhat generate a substantial amount of revenue and hence a good reason for the government to retain concession when the current one expires. The concession contains relinquishment clauses, which could compel the Oil Company to either to discover commercial reserves; or following the discovery of commercial reserves within a certain period of time, relinquish usable portions of the concession back to Urbania government. The concession has an express work obligation of a limited period of time within which the Oil Company is expected to commence oil exploration and on discovery of commercial reserves, the company would be expected to develop oil in accordance with good oilfield practice. This means that the government will have some powers to control the activities of the oil company in a manner that ensures the company is following oil industry practices. The joint venture agreement is another option that Urbania government can put into considerations after the current ...Download file to see next pagesRead More
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