Petroleum Exploration and Production Rights: Allocation Strategies and Design Issues

by Silvana Tordo

Overview

Many governments rely on oil companies to efficiently exploit natural resources. Governments have the challenging task of deciding which companies should be awarded exclusive rights to explore, develop, and produce their petroleum resources, and on what conditions such rights should be awarded. This paper analyzes the available evidence on the advantages and disadvantages of various systems used by petroleum-producing countries to allocate petroleum exploration, development, and production rights, and considers the policy implications of each system. The experience of six petroleum-producing countries is presented in detail, and numerous other examples are provided to derive lessons of wider applicability. The paper presents various conclusions for policy makers about the optimal design of allocation systems.

Product Details

ISBN-13:	9780821381687
Publisher:	World Bank Publications
Publication date:	01/12/2010
Series:	World Bank Working Papers , #179
Sold by:	INDEPENDENT PUB GROUP - EPUB - EBKS
Format:	eBook
Pages:	124
File size:	416 KB

Table of Contents

Acknowledgments vi

Acronyms and Abbreviations vii

Executive Summary ix

1 The Exploration, Development, and Production of Petroleum Resources 1

Uncertainty and Risk: Key Elements of Petroleum Exploration, Development, and Production 1

The Decision to Explore for Petroleum Resources 2

Exploration and Inter-Temporal Depletion Policies 3

Exploration and Inter-Generational Equity 3

Exploration and the Maximization of the Resource Rent 4

Who Carries the Risk of Exploration? 5

2 Alternative Approaches to the Granting of Petroleum Exploration, Development, and Production Rights 8

Legal Regimes for Petroleum E…#x2026;P 8

Concessions 9

Production Sharing Contracts 10

Service Agreements 10

Fiscal Regimes for Petroleum E&P 10

Taxation Instruments and Methods 11

Comparison of Key Fiscal Elements of Concessions, PSCs, and SAs 12

The Allocation of Petroleum E…P Rights 12

Open-Door Systems 14

Licensing Rounds 14

Biddable or Negotiable Factors 17

Some Countries' Experience 20

3 The Design of Appropriate Allocation Systems 29

Allocation System Objectives 29

Consistency with Petroleum Sector Policy 30

Selecting the Most Efficient Operator 31

Keeping Compliance and Administrative Costs Down 33

Minimizing Distortionary Effects 35

Addressing Market Deficiencies 36

Key Issues in Allocation Systems Design 38

Open-Door Systems or Licensing Rounds? 38

Auctions or Administrative Procedures? 38

Which Form of Auction Is More Likely to Lead to Higher Bids? 39

Are Planning and Commitment Important? 40

What Really Matters for the Design of Licensing Rounds? 43

What Does This Mean in Practice? 45

4 Conclusions 48

What Type of AllocationSystem Is Best? 48

Why Do So Many Systems Look So Similar? 49

Is System Design Important? 49

Appendixes 50

I Life Cycle of a Typical Oil and Gas Project 51

II Main Fiscal Instruments: Advantages and Disadvantages 53

III World Average Fiscal Terms 57

IV Select Countries Experience 58

Australia 58

Licensing policy 58

Licensing history 59

General observations 59

United Kingdom 62

Licensing policy 62

Licensing history 63

General observations 64

United States 67

Licensing policy 67

Licensing history 68

General observations 69

Brazil 73

Licensing policy 73

Licensing history 74

General observations 78

Mexico 81

Licensing policy 81

Licensing history 82

General observations 84

Republic of Yemen 87

Licensing policy 87

Licensing history 88

General observations 90

V Allocation Systems Design: Example 92

Glossary 94

References 100

Tables

Table 2.1 Objectives of Fiscal Systems 11

Table 2.2 Fiscal Elements of Petroleum Agreements 13

Table 2.3 Overview of Allocation Systems in Select Countries 21

Table A.l Alternative Bid Design 67

Table A.2 Overview of Brazil's Licensing Rounds 77

Table A.3 Bidding Rounds Summary 84

Table A.4 Biddable Parameters 89

Figure

Figure 3.1. Allocation Policy Flow Chart 30

Boxes

Box 3.1 Licensing Policy as a Means to Promote Local Content 32

Box 3.2 Tax Implications of the Transfer of E&P Rights 33

Box 3.3 Administrative Complexity 33

Box 3.4 Examples of Bidding Parameters 34

Box 3.5 Minimum Bidding Requirements 34

Box 3.6 Excessive Royalty Rates 35

Box 3.7 Oversized Work Programs 35

Box 3.8 Fiscal Incentives to Cost Saving 36

Box 3.9 Information and Risk Perception 37

Box 3.10 Joint Bidding or a Forced Marriage? 37

Box 3.11 Example of Sequential Auction 39

Box 3.12 Issues with the Planning of Licensing Rounds 41

Box 3.13 Changing the Rules of the Game 42

Box 3.14 Reserve Prices 44

Box 3.15 Transparency Mechanisms : 45