1. The relationship between oil producers and host coutries under international law Manuel de Almeida Ribeiro - 2015

2. Actors Host countries Consumer countries IOCs NOCs Governamental agencies Manuel de Almeida Ribeiro - 2015

3. States and IOCs The sovereignity issue Historical note Manuel de Almeida Ribeiro - 2015

4. Basic arrangements to develop petroleum between host countries and IOCs 1.Concession 2.Production sharing contracts 3.Service agreements 4.Participation agreements 5.Hybrid agreements Manuel de Almeida Ribeiro - 2015

5. Concession agreements The Middle East experience – Vast acreage – Long period – Extensive control of IOC over schedule and development – Few rights to the sovereign Ex. Contract of William d’Arcy with Persia in 1901 ($100.000 bonus; $100.000 stock of the company;16% royalty; 60 years) 1933 contract between Saudi Arabia and Standard Oil (50.000 pounds of gold; 66 year contract) cont. Manuel de Almeida Ribeiro - 2015

6. Concession agreements Cont Other concessions: Kuwait Abu Dhabi (both 75 years) Mexico (expropriation in 1938) Concession agreements did not obligated companies to drill or to release not drilled territory No right of states to interfere in management decisions Rights of states limited to receiving royalties Manuel de Almeida Ribeiro - 2015

7. Concession agreements Similitude with contracts with private parties in the United States Evolution of american contracts with private parties in the United States after the 30’s: Disapearence of fixed terms and no term leases Lessee’s interest last a set number of years (5/10) so long oil and gas might be produced Royalty standartized in 1/8 of production for oil and 1/8 of sale price or market value for gas Benefit of American court system Manuel de Almeida Ribeiro - 2015

8. Concession agreements Rebalancing the contracts Options for states: – The “Mexican option” – The “do nothing “ approach – Renegotiation – the role of OPEC (1950-1960) Manuel de Almeida Ribeiro - 2015

9. From concession to participation The Saudi case: – From 21 cents per barrel (oil sold between $1,72 and $2,25) to 50% profit sharing – Other similar cases – Iran and Iraq – Imposing taxes on oil companies (Aramco 1950) Manuel de Almeida Ribeiro - 2015

10. From concession to participation Formation of OPEC - 1960 Founding states: Iran, Iraq, Kuwait, Suadi Arabia and Venezuela Objective – to address the unilateral reduction of “posted price” of oil by the Seven Sisters (Esso, BP, Shell, Standard Oil of California, Mobil, Gulf and Texaco) Manuel de Almeida Ribeiro - 2015

11. From concession to participation Negotiations of 1971 between IOCs and producing countries: The Agreement guaranteed continued shipment of oil and stability in financial arrangements for the five years 1971-1975. It gave the Gulf countries concerned an additional yearly income of over US$ 1,200 million for the year 1971, rising to nearly $3,000 million in 1975. The companies were given guarantees against any change in major financial terms for a period of 5 years, as well as guarantees against any further OPEC demands during the term of the Agreement. The tax rate on the oil exports to the Gulf states was set at 55% in addition to a regular increment of 35 cents per barrel on the posted price at Gulf terminals. This increment included 2 cents in settlement of price differentials. As of the Agreement’s going into effect, the posted price of Gulf crude was to be determined according to a new gravity differential system, and companies had to effect as of June 1 and on the first day of each subsequant year for the period 1973-1975, a new increase of 2,5% in postings to compensate for workd-wide inflation. The producing countries agreed not to ask for further price increments or for any additional financial obligation during five years. Manuel de Almeida Ribeiro - 2015

12. From concession to participation The modern concession: – Retaining some degree of control over development of reserves – Evolution of international law on national resources (UN Resolution on Permanent Sovereinity over Natural Resources; Declaration on the Establishment of a New International Economic Order; Charter of Economic Rights and Duties of States) Manuel de Almeida Ribeiro - 2015

13. From concession to participation Methods of exercising control: – Trough a governmental agency – Trough the imposition of a working program upon the foreign corporation – Trough the owning of the concession or the participation of a NOC Contractual framework –the power of the state to unilaterally change the contract Manuel de Almeida Ribeiro - 2015

14. Other contractual arrangements North Sea licensing systems: Denmark, Netherlands, Norway and UK Manuel de Almeida Ribeiro - 2015

15. Production sharing contracts In the late 1950s and 1960s, Iran and Indonesia abandoned the traditional concession in favour of the Production Sharing Contract Basic aspects: 1.State to IOC - right to explore, recover cost and possible profit 2.State grants acreage and receives a part of production 3.Risk of loss assumed by the company Manuel de Almeida Ribeiro - 2015

16. Production sharing contracts Other clauses of PSC: – Providing of materials, technology, capital and labor by IOC – Most of the equipment reverts to NOC or state in the end of the contract – Role of the NOC Manuel de Almeida Ribeiro - 2015

17. Risk service contracts and technology assistance agreements Mean of avoiding constitutional or legal restraints on foreing ownership of oil resources and production The contractor is paid based upon the ultimate success of the service; if the service is a failure, the IOC receives nothing The IOC is reimbursed for its investment and paid for its services only if there is commercial production Usually provides for payment in cash but gives a right to purchase a portion of the oil produced at a discounted price. Manuel de Almeida Ribeiro - 2015

18. Risk service contracts Brazilian model Exploration period – 3 years onshore, 5 years offshore+1/2 years extension No entitlements to payment if there is no commercial discovery In case of commercial discovery, contractor will carry out the development according to a plan agreed by the parties Upon completion of the development plan, PETROBRÁS takes over the production on an exclusive basis In case of commercial production all the expenses of the contractor are reimbursed by PETROBRÁS Manuel de Almeida Ribeiro - 2015

19. Technical assistance agreements The Venezuelan case Retribution trough a fee based upon each barrel of oil produced and each barrel of oil refined Manuel de Almeida Ribeiro - 2015

20. Participation agreements Joint venture nature Not so much a separate form of development arrangements as an agreement which is an adjunct to a concession, PSC or even a risk service contract Participation Agreements and JOAS NOCs and IOCs in PAs Manuel de Almeida Ribeiro - 2015

21. CONCLUSIONS

22. Manuel de Almeida Ribeiro - 2015