SPE Member


This paper is intended to provide guidelines for petroleum legislation and regulation for developing petroleum exporting nations and the transitional nations of the Commonwealth of Independent States and the petroleum producing nations of Eastern Europe. Included in this survey of methods of petroleum regulation and legislation are concepts of ownership of petroleum rights, contractual arrangements between host countries, and investing international petroleum companies, component, of petroleum regulation, the differing perspectives of investing companies' and host national governments of petroleum regulation, and an expected monetary value model of petroleum regulatory design which incorporates the consideration of exploration risk to enable national governments to maximize public revenue while encouraging exploration investment and the obtainment of domestic political economic policy objectives

II. Introduction

The development of petroleum regulation is a dynamic not a static process. As political and economic aspirations and the power of developing host countries are enhanced so should the regulation of national, vital, nonrenewable resources also should be altered to reflect those aspirations and influence while maintaining the attractiveness of investment opportunities and exploration for the international petroleum companies.

The governments of petroleum exporting countries have, in the last 35 to 40 years, progressively come to play a more significant role in the determination and control of the exploration of their own resources and have come to establish the rules on the sharing between themselves as host countries and investing international petroleum companies of the benefits from that exploitation. Even as late as 25 years ago, often, an assumed but unarticulated concept of occupational ownership of mineral rights or a less offensive concept of regalian ownership of mineral rights enabled international petroleum companies to minimize host country petroleum legislation and regulation protecting and exercising national sovereignty over domestic natural resources. Accessional and dominal concepts of mineral rights ownership were introduced as borrowed Western solutions to developing countries' demands for greater control over their own resources. Although their introduction was a step forward in meeting the host countries' objectives of more equitable distribution of benefits from the exploitation of national resources by international investors, accessional and dominal systems of ownership are unable to fulfil domestic demands for the inclusion of traditional cultural values in the control and sharing of benefits from petroleum exploitation. Islamic systems of mineral rights ownership and the more recent demand of communal systems of mineral rights ownership can be legislated into the Western economic terms of the international petroleum industry and provide the inclusion of traditional cultural values to host nation petroleum regulation.

Initially, the only form of regulation was a relatively small royalty on each ton produced and, in some cases, rents and bonuses. The going royalty rate in the 1920s and 30s was usually fixed at four shillings per ton of produced crude (about US $0.0719 per barrel).

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