Ait-Laoussine, Nordine, International Energy Development Corporation Miller, Norman W., Consultant to International Energy Development Corporation Parra, Francisco, Parra, Francisco, International Energy Development Corporation

Abstract

Developing countries outside the OPEC Area are faced today with an urgent need to develop their indigenous energy resources and, in particular, their hydrocarbons. These are of key importance to net oil importers and small net exporters alike if their economic development is to continue at a satisfactory pace. In the past, governments have concentrated on structuring their exploration and production agreements in such a way as to secure for themselves most of the economic rent or windfall profits that result from large oil discoveries, and this has meant that exploration for the smaller fields has been seriously inhibited. There is a need now to structure E+P agreements so that they combine the governments' goal of capturing the economic rent on large discoveries with encouragement to explore for and develop the smaller fields which, in many countries, would make a significant contribution to the energy economy. The present paper puts forward a new framework agreement to accomplish puts forward a new framework agreement to accomplish these twin goals in a practical manner. It recognizes and builds into the agreement the fundamental distinction between the exploratory and development phase and ties the contractors' reward to the financial rather than the physical performance of the field.

Introduction

The global energy situation has changed signifcantly in the past decade, as the world has moved from a period of abundant low-priced oil supplies to a era of higher cost oil, foreseeable limits to supplies and a public which is much more conscious of the value of its energy resources. While the industrialized countries are managing to cope reasonably well with this changing energy scene, many of the developing countries are encountering severe difficulties in financing the high costs of imported oil needed for their continued development.

Many of the developing countries facing this current energy and financial dilemma have the potential for discovery and production of new supplies of oil and gas within their borders, which could enable them to reduce their dependence on imported high-priced oil and may even enable a few countries to export oil in the future. Despite this acknowledged potential, however, the current effort to find and develop these resources falls far short of what is needed, especially when compared to the level of drilling activities in the developed countries, particularly the United States.

NEED FOR NEW FISCAL CONCEPT

The International Energy Development Corporation (IEDC) believes that one of the factors which could help stimulate additional exploration in some of the developing countries is the improvement of revenue sharing terms between the Governments of these countries and the foreign oil companies needed to carry out exploration activities. The forms of these revenue sharing agreements have become more complex and diverse over the years, as Governments have become increasingly concerned with improving the efficiency of the terms offered in order to better protect their national economic interests in the exploitation of these resources. Numerous types of taxation, production sharing and risk contract terms are being applied in many countries today. Often, however, the terms offered by a country do not sufficiently accommodate the geological and operating uncertainties and the differing financial perspectives of the foreign companies.

In response to this need for a new fiscal concept, IEDC is proposing a new approach to revenue sharing between foreign companies and Host Governments. This new regime is designed to respond to the actual financial performance attained and results experienced by a foreign company in exploring for and developing new supplies of oil and gas. It is also designed to facilitate the Host Government's use of available international funds to assist in financing its participation and investment n the development of new participation and investment n the development of new petroleum supplies. petroleum supplies.

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