Institut Francais Du Petrole - Legal, fiscal and contractual framework

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Transparency and Accountability

Policy, Legal and Contractual Framework

Sector Organization and Institutions

Fiscal Design and Administration

Revenue Management and Distribution

Sustainable Development

Institut Français Du Petrole Publications, Legal, fiscal and contractual framework (Chapter 5) in Oil and Gas Exploration and Production: Reserves, Costs, Contracts (Paris, France: Editions Technip, 2004)

In chapter 5 of Oil and Gas Exploration and Production: Reserves, Costs, Contracts, Guirauden analyzes the key issues that are to be addressed in a legal, fiscal and contractual framework. He begins his analysis by discussing the types of regimes of ownership of petroleum resources emphasizing that most countries use a hybrid regime in which the state exercises its sovereignty over the natural resources. He then goes on to explore the regulatory options, noting that there are two approaches to establishing a legal framework for exploration and production of hydrocarbons: (1) the legislative approach, which states in detail the modes of exploitation; and (2) the contractual approach, in which the relationships between the state and the oil companies are essentially defined by contract.

In order to give a comprehensive account of both approaches Guirauden gives full details of the content which is usually included in petroleum legislation and a contract. He notes that petroleum legislation should define the objectives of a petroleum policy, establish the conditions under which petroleum licenses are granted and the way in which petroleum activities are conducted and monitored. Furthermore, petroleum legislation should define the tax regime applied to the petroleum sector, identify the competent authority charged with petroleum matters and determine the rights and obligations of contractors and licensees.

Regarding the contractual approach, the author discusses the types and features of petroleum agreements(concession, production sharing agreement and risk service agreement). He observes that the provisions in a petroleum contract normally falls into one of four categories: (1) technical, operational and administrative provisions which deal with practical aspects related to the conduct of operations during the different phases; (2) economic, taxation, financial and commercial provisions which deal with how the profits will be split between the parties, how petroleum costs will be accounted for, pricing and disposal of production; (3) legal provisions which deal with the application and modification of the contractual relationships between the parties; and (4) miscellaneous provisions which deal any other matters.

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