Local content and procurement requirements in oil and gas contracts (original) (raw)

Contracting and regulatory issues in the oil and gas and metallic minerals industries

This article looks at key regulatory and contractual issues in the oil and gas and also metal minerals industries. It provides an overview of contract types and discusses several state-of-the-art issues. In discussing contract types, it first provides a brief historical backdrop. It then turns to the major contract types. Both the history of traditional concessions and the enumerated present-day contract types are common to oil and gas and also metal mineral extraction. For this reason, they will be discussed together. Among state-of-the-art issues, the article considers (1) contract renegotiations, mainly with regard to Bolivia, Ecuador and the Venezuela; (2) the proposed Iraqi oil law; and (3) the handling of human rights and environmental issues by projects.

Oil and Gas Service Contracts around the World: A Review 1

This paper reviews the energy strategy and oil and natural gas fiscal systems of eight major oil or natural gas producing countries which have either adopted a variation of a service contract or have shown interest in this framework as an alternative to production sharing contracts over the period 1990 to 2014. In particular, we look at each country's variation of service contract, and examine how these variations of service contracts are different from each other. A service contract is a long-term contractual framework that is used by some host governments to acquire the international oil companies' expertise and capital without having to hand over the field and production ownership rights to them. Our review suggests that the new interest in service contracts might be explained partially by heightened sovereignty concerns and the political environment on one hand, and the need for international oil companies' capital and know-how in developing oil and natural gas fields in the host countries on the other. In our review, we also explore some of the drawbacks of service contracts including the potential for economically inefficient outcomes. In addition, we look at some possible solutions for improving the economic efficiency of service contracts.

Reflections on the law applicable to international oil contracts

The Journal of World Energy Law & Business, 2013

Business activity in the hydrocarbon sector, involving the extraction of natural resources essential to maintain our modern lifestyle, begins with the negotiation of oil and gas exploration and exploitation contracts. Apart from the traditional role of the parties' contractual autonomy, determining the legal regime of these contracts necessitates considering the role of international law, the development of oil sector-specific international rules (lex petrolea), and the impact of the imperative norms of national legal systems, especially in expropriation cases and in those situations in which investments or commercial transactions in a particular State are subject to limits or prohibitions relating to economic coercion measures.

THE DRAWING UP OF INTERNATIONAL EXTRACTIVE CONTRACTS (OIL, GAS, MINING) LA REDACTION DES CONTRATS EXTRACTIFS INTERNATIONAUX (PETROLE, GAZ, MINES

RDAI/IBLJ, No4, 2015, 2015

How does one write an extractive contract? How does one write a contract whereby a state grants a company the exclusive right to exploration and/or exploitation and marketing of mineral resources, oil or gas in a given field in exchange for a price, taking account of royalties, taxes and possibly a sharing of production or profit or other obligations of economic or social compensation? The issue has seldom been studied by a discipline that is too often limited to the examination of extractive contracts’ compliance with the rules of nationally or internationally applicable law.1 Legal practitioners2 insist instead on professional practices, the interests of the parties and the ‘‘win– win negotiating paradigm’’. The practice of writing these contracts teaches that their composition aims first to make an extractive industry operation actually operational,3 then to determine the economic balance4 of the activity, which results from the bargaining power of the parties, and only at the end is there any reference to the compliance of the activity within a legal environment, such as mining codes, the Bilateral Investment Treaty, etc. This is also often the order of priority that can be found in the order of the articles of an extractive contract. We therefore propose a concrete method of drawing up extractive contracts by asking three successive questions and will give examples of all the clauses which provide an answer to these questions. First, what is the ‘‘governance’’ of the contract, that is to say, who are the parties to the contract and what is their relationship— and power—in the extractive activity? These introductory clauses may include corporate clauses; the construction consortium and wider group of companies to build the group of contracts (state contract, joint venture, statutes of the joint venture company, subcontracts, Cooperation Committee); but may also include the terms of decision making that allow the operator to implement in concrete terms the industrial and financial operations defined in the work program. Secondly, what is the ‘‘contract economy’’, that is to say, what are the main obligations of the parties in both the senses of essential obligations of the parties and the economic balance of the contract? These might include, in the main body of the contract, object clauses; the rights granted by the state; the work program; the terms of economic compensation; but also the financial covenants, tax clauses, sharing clauses costs and profits, which with industrial requirements, determine the economic balance of the contract. Thirdly, what are the terms that draw the ‘‘normative space’’ of the contract, that is to say, what are the dispute resolution mechanisms and choice of law applicable to these disputes; and the choice of normative hierarchies? Finally we have references to the standard contract clauses; applicable laws; stabilisation; mediation; expertise and arbitration.

CONTRACTING STRATEGIES AND LOCAL CONTENT POLICY PROMOTION: THE NIGERIAN OIL INDUSTRY EXPERIENCE

The need for oil producing countries to protect their interestsand benefit sufficiently from their natural resource has led to a growing trend in the introduction of Local Content Policies. On realizing that about 80% of the capital budget of an oil and gas project is spent on contracting, the subject matter is now treated with great importance. In response to this statistics, the Nigerian government has included clauses in their policies to get the local contractors involved in the projects to reduce capital flight and achieve technology transfer. The objectives of this research were to review literature related to contracting strategies, understand and appraise the framework of the Nigerian Content policy and finally suggest how local participation can be improved. Primary data was collected from a survey via web-based questionnaires and a telephone interviews. After careful analysis and comparisons of findings, certain conclusions were drawn. A strategy for successful participation of local contractors in oil and gas projects was identified and developed. This served as a recommendation for the Nigerian government and the relevant authorities. The model showed that Nigerian Content promotion is all encompassing. The Local environment, Local Content capacity building, local infrastructure, Local Content linkages were shown to be dependent on one another, and a mixed contracting Strategy was recommended for effective Nigerian Content promotion.

Local content in the oil and gas sector

2013

A number of countries have recently discovered and are developing oil and gas reserves. Policy makers in such countries are anxious to obtain the greatest benefits for their economies from the extraction of these exhaustible resources by designing appropriate policies to achieve desired goals. One important theme of such policies is the so-called local content created by the sector—the extent to which the output of the extractive industry sector generates further benefits to the economy beyond the direct contribution of its value-added, through its links to other sectors. The use of industrial policy in the petroleum sector to support broad-based economic growth is hardly a new trend in the oil and gas sector. Local content policies (LCPs) were first introduced in the North Sea in the early 1970s and ranged from restrictions on imports to direct state intervention in the oil sector. Over time the aim of LCPs has evolved from creating backward links (that is, supplying input to the local economy through transfer of technology, the generation of value-added in domestic supply sectors, the creation of local employment opportunities, and increasing local ownership and control) to creating forward links link (that is, processing the sector’s output prior to export through, for example, the establishment of refineries, petrochemical industry, and the production of fertilizers). While LCPs have the potential to stimulate broad-based economic development, which is necessary to alleviate poverty and achieve the United Nation’s Millennium Development Goals (MDGs), their application in petroleum-rich countries has achieved mixed results. The use of specialized inputs and the technological complexity of the petroleum sector often limit the possibility of developing backward and forward links into the local economy. An economy that is very limited can hardly be expected to quickly supply services (let alone build forward links). A fast-growing petroleum sector coupled with too ambitious local content targets may exacerbate supply bottlenecks arising from increased aggregate final demand. This would ultimately affect employment and output trends in other sectors of the economy, create distortions and inefficiencies, and in some cases even promote corruption. Furthermore, the size and location of petroleum projects also affect the type of potential links, and the speed at which they can efficiently develop. The use of LCPs raises a number of questions: What exactly is “local content”? What is the extent of local content in the oil and gas sectors? Why is increasing local content good for development? What types of policies can be used to encourage an increase in local content? What are the costs and benefits of introducing such policies? How can the implementation of such policies be monitored and how can their impacts be measured? What are the lessons to be learned from oil- and gas-producing countries that have implemented policies to increase local content? This study serves to introduce the topic by describing policies and practices meant to foster the development of economic links from the petroleum sector, as adopted by a number of petroleum-producing countries both in and outside the Organisation for Economic Co-operation and Development (OECD).

PETROLEUM CONTRACT TAKING INTO CONSIDERATION NIGERIAN COMMUNITIES

Nigeria is a country whose economy now depends or revolves around its petroleum resources. These natural endowments which had placed its name in a conspicuous place of pride among the world community have been the major sources its foreign exchange earning and the engine room that drives its train of development. The abundance of such natural resources has been the ground for conflicts in its Niger Delta region . These conflicts have resulted to a lot of insecurity in this region and a gradual crippling of economic activities in the oil industry in this region as well as other economic activities. A passing look at the reasons for these agitations usually will raise questions concerning the basis for the participation of the oil companies in oil exploration in Nigeria. While the agitation raise issues which are germane to the continued exploration of petroleum in that region this work will be concerned with the contractual basis of petroleum exploration in Nigeria; and how these contracts affect the various Nigerian communities. The relationship between the Nigerian communities and the entities engaged in oil exploration is a symbiotic one, it is granted as a result that conflicts are usually anticipated or are bound to occur; it is also envisaged that such conflicts can be provided for by contract where the parties are free to contract. The current contracts applicable in Nigeria will be analyzed with a view to ascertain if the adequately address the grey areas which has been the bases of friction and persistent conflict. It may also be that the enabling laws regulating the oil and gas industry in Nigeria contributes to the re-occurrence of conflicts or more appropriately empowers a party while disempowering the other party. To this ends an in-depth look on the enabling laws as it addresses such issues/concepts as “Ownership” in the oil and gas industry in Nigeria. Nigeria operates a Federal constitution which established three tiers of Government at various levels. The roles of these tiers of Government in petroleum contracts will be analyzed while useful opinions and suggestion will be proffered. This paper examine, analyse and compare different types of Petroleum Contracts in Nigeria in relation to how they affect the interest of the host nigerian communities. it also seek to address the origin of the short change of the host communities, either form the Petroleum Legislations in Nigeria or the Contracts. The Paper is divided into four chapters, of Historical Backgrounds, Petroleum Contracts, The Niger Delta as a case study and Proposals and Recommendations

Contractual Systems in the Oil and Gas Sector: Current Status and Development

Energies

Production activities in the oil and gas industry are capital-intensive and associated with high technology, with these assets not always being available to oil-producing countries or national companies. Any form of interaction between the parties involved in natural resource extraction requires clear regulation regarding contractual relationships. This study attempts to analyze Indonesia’s production sharing contract system in order to assess its applicability to other conditions. The article covers the key aspects of contract theory, provides a classification of contractual systems in the oil and gas sector, and discusses the most common types of contractual agreements. It also considers the key principles of production sharing contracts (PSCs), analyzes the development of PSC practices in Indonesia over the past sixty years, and highlights PSC advantages and disadvantages.

Petroleum Contracts Taking Into Consideration Nigerian Communities

This paper examine, analyse and compare different types of Petroleum Contracts in Nigeria in relation to how they affect the interest of the host nigerian communities. it also seek to address the origin of the short change of the host communities, either form the Petroleum Legislations in Nigeria or the Contracts. The Paper is divided into four chapters, of Historical Backgrounds, Petroleum Contracts, The Niger Delta as a case study and Proposals and Recommendations