This paper examines the nature of exploration agreements that have been adopted around the world and demonstrates their effect on Government revenue receipts and Company project economics. It is based on a survey of current agreements covering some sixty countries.

Oil and gas exploration only takes place when agreement has been reached on the terms that govern the division of risk and reward between an oil Company and its host Government. This agreement frequently involves lengthy negotiations. The aim of this paper is to improve the understanding of the parties as to the effect of the variables involved. Greater understanding should improve the efficiency with which Companies and Governments reach such agreements.

The evolution of different forms of agreement and their fiscal mechanisms are compared with a view to recommending future improvements. The impact of each type of provisions, such as bonuses, royalties, and tax rates are quantified with respect to their impact on project economics. Graphical comparisons are used to demonstrate the impact of marginal changes to rates and provide a framework for developing changes.

It is the objective of this paper to provide an insight into the increasingly complex terms adopted for modern exploration licences and a practical approach for Companies and Governments to assess the relative merits of alternative fiscal regimes.

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