What Is A Petroleum Concession Agreement

Service contracts. Under this regime, the government provides venture capital for oil exploration and production. The contractor is content to provide the prescribed benefits and will receive a flat fee, whether or not there is discovery. This treaty is very appropriate for oil-producing countries with very high oil resources and are therefore very inclined to commercial discovery such as Saudi Arabia, Kuwait, Qatar, Bahrain and Abu Dhabi. Unlike risky service contracts, the company also acquires an interest in the resource acquired under the basic services contracts. Risk service agreements are the least used type of contract among the three listed here. They have been used by states that have a nationalist approach, or by countries like Venezuela, Iran or Iraq, which have long had oil production. Under this type of agreement, the host Member State is merely terminating the service of an oil company or consortium in order to benefit from its financial and technical know-how. The company or consortium assumes risk and responsibility and is reimbursed by a service fee that is usually paid in cash. An example of this type of agreement is the absence of Iran`s buy-out agreements, which have proved too painful to be considered by a private investor. The modern concession agreement replaced the traditional concession regime in the 1940s, when Venezuela imposed additional financial burdens on its foreign investors (such as tax incentive schemes). Under concession agreements (or licenses), the selected refining company or consortium conducts exploration activities. The company takes over all of the production, when it is extracted, in return for the payment of a royalty to the host state.

Royalties could be in cash or in kind. It could also take the form of a income tax or other types of fees and contributions, possibly including an additional income tax, if it exceeds a pre-defined threshold. This type of contract is called a licence and generally gives the licensee the exclusive right to explore and value oil, own and market production, and own the corresponding equipment and facilities. In 1968, Libya, under the leadership of several Middle Eastern countries, began negotiations with fraP-Aquitaine for the creation of a new type of joint venture exploration agreement. To achieve this goal, the Libyan government has created a national oil company, the Libyan General Petroleum Corporation (Lipetco). It has been given a broad mandate to participate, on behalf of the Libyan government, in oil and gas exploration, drilling, production, refining and transport operations in Switzerland and abroad. The joint enterprise agreement signed with Der Aquitaine (LP 1), signed in April 1968, marked a new beginning, and no other licences were granted under the 1965 oil law. Other joint venture agreements were quickly concluded with Shell (LP 2 and LP 3), Agip (LP 4) and Ashland (LP 5).

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