PTRT 1473: Exploration and Production II

Chapter 0:
Introduction
 Industry History
History of Petroleum Discoveries
▪ Babylon: Four thousand years ago, asphalt was used in the construction of
the walls and towers of Babylon; there were oil pits near Ardericca (near
Babylon)
▪ Egypt: oil to preserve mummies
▪ Babylonia: oil to seal walls and pave streets
▪ China: natural gas to evaporate brine
▪ Greece: pitch spring on Zacynthus (Ionian islands); great quantities of it were
found on the banks of the river Issus
▪ America: tar to seal canoes

Tar sand near

Redden
Oklahoma (Atoka
County)
La Brea tar pit in LA
Oil and gas seeps on ocean floor
Early US Discoveries
▪ PA (1859)
▪ CA (1865)
▪ TX (1880s significant discs)
▪ OK (1897)

History of Drilling
Onshore
▪ 347 - China: using bits attached to bamboo poles wells were drilled up to 790 ft
▪ 1846 - Baku Azerbaijan: using percussion tools to a depth of 21 meters.
▪ 1848 - Absheron Peninsula north-east of Baku: the first modern oil well was
drilled by Russian engineer F.N. Semyenov
▪ 1854 - Bóbrka Poland: Ignacy Łukasiewicz built one of the world's first modern
oil wells 4

▪ 1858 – Ontario Canada: using cable tool

▪ 1859 – Titusville USA: using cable tool by Edwin Drake to 70 ft
Wooden derricks

Credit: Courtesy the Pennsylvania State Archives

Edwin L. Drake (in the top hat, foreground) at his original oil well in 1861
Tarr Farm, Oil Creek Valley. The Phillips well on the right initially produced 4000 barrels
a day in October 1861 and the Woodford well on the left came in at 1500
barrels a day in July, 1862.
 Pennsylvania in 1865
Townspeople pose next to an oil derrick near Lamartine, Pennsylvania. The heyday for
the oilfields of northwestern Pennsylvania lasted from 1859 to 1873.
Offshore

▪ Offshore drilling can be traced as far as 1869, when a patent for the blueprint
of an offshore drilling rig was approved
▪ Most historians trace offshore exploration and production to Summerland, CA
in 1897; oil seep made H. Williams to go straight to production without
exploration; a cable tool rig was used; most prolific production: 75 b/d,
average production: 2 b/d
▪ After World War II, the first offshore oil well that was totally out of land’s view
was drilled in 1947 in the Gulf of Mexico; Production: 500 b/d
▪ Ever since that time, offshore oil generation and particularly in the Gulf of
Mexico, which is still a major offshore oil site, has thrived with the detection
and distribution of multiple oil and gas deposits.
▪ Oil wells off the Barents Sea’s northeast coast supply nearly 90% of Australia’s
total petroleum.
▪ Offshore oil rigs make up 25% of natural gas reserves and 24% of oil
manufacture in the United States.
 Summerland, CA in 1901

America’s offshore petroleum industry began in the late 19th century in Pacific Ocean
with drilling and production piers at Summerland, California. Drilling platforms also
appeared on lakes in Ohio and Louisiana.
The wells were drilled from piers extending from land out into the channel

History of CA offshore https://www.youtube.com/watch?v=BbXOJYaqaYU

 Wooden derricks
One of the oldest subsea wells is
the Bibi Eibat well, which came
on stream in 1923 in Azerbaijan.
The well was located on an
artificial island in a shallow
portion of the Caspian Sea.

Pennsylvania in 1865

Texas in 1930s
http://aoghs.org/offshore-history/offshore-oil-history/
First Refineries
▪ Iraq: petroleum was distilled by Muhammad ibn Rhazes in the 9th century,
producing kerosene which was mainly used for kerosene lamps.
▪ Arab and Persian chemists distilled crude oil in order to produce flammable
products for military purposes.
▪ Azerbaijan: oil fields were exploited in the 9th century to produce naphtha

Demands
▪ Industrial Revolution
▪ Internal Combustion Engine (1885)
▪ Global Economic Growth
Initially, oil produced was used to provide kerosene for lamps, but the later
invention of automobiles drove up demand and ushered in modern methods of
oil exploration.
History of Exploration Techniques
Ancient: Seep identification
▪ Traditionally, oil exploration was conducted by recognizing seeps of
hydrocarbons at the surface.
▪ In Baku, Azerbaijan, there were gas and oil seeps permanently on fire
▪ Seeps were recognized and exploited in the Caucasus (Groznyy region of
Chechnya)
▪ In fact, most oil until the turn of the twentieth century was in one form or
another related to seep identification.

1883: Anticlinal theory

Petroleum Accumulates in Structural Closure
In the mid 1800s, William Logan, first Director of the
Geological Survey of Canada, recognized oil seeps
associated with the crests of convex-upward folded rocks
and employed a geologist, Thomas Hunt, to formalize his
"anticlinal theory." This idea, however, was only recognized
as a viable tool for exploration when Spindletop was
discovered on the Gulf Coast of Texas in 1901.
For the next 30 years, the anticlinal theory dominated exploration, to the extent
that many believed that there were no other types of hydrocarbon accumulation.

1900: Geologic Mapping

Around the turn of the century and up until the 1950s, the main exploration
tool used for finding oil was the use of intensive and detailed geological
mapping. This was frequently in terrain that was remote and inhospitable. The
early pioneers working their way through the jungles of Burmah, India (Burmah
oil company, now part of British Petroleum ), and Borneo (Shell), the deserts of
Iraq or the mountains of Iran (the Anglo-Persian Oil Company that became
British Petroleum), would conduct detailed evaluations of the nature and
distribution of rock units. These rock units represented potential reservoirs,
seals, and source units, as well as frequency, orientation, and geological history
of folds or faults that could act as traps for the migrating hydrocarbons.
It took until the 1920s for explorers to realize that hydrocarbons could occur in
situations where no anticline was preserved. For example, it was noted as far
back as 1880 that oil was trapped in the Venango Sands of Pennsylvania, not in
the form of an anticlinal structure, but by the lithologies occurring in a moving
palaeoshoreline. In fact, oil trapped by stratigraphy was discovered more often
by chance rather than design even until the 1970s.
1920s: Seismology
By the 1920s, mapping of surface features was complimented by the
development of seismic refraction, gravity , and magnetic geophysical methods.
In particular, gravity and seismic methods proved effective in locating oil trapped
against buried salt domes in the onshore Gulf of Mexico .
Perhaps the development of reflection seismology (2D) in the 1920s was the
most significant technological advancement. The emergence of 2D seismic lines
with improved processing led to the discovery of many of the world’s largest oil
and gas fields in the following decades.
1927: First electrical well logging
A significant advance in exploration of the subsurface took place with the
application of geophysical techniques by the Schlumberger brothers to
measuring properties of rocks and fluids encountered whilst drilling for
hydrocarbons. In France in 1927, they initially measured the resistivity of the
rocks in shallow wells (drilled primarily for water distribution), but later went on
to add other electric, sonic, and radioactive logging tools. It is now even possible
to log porosity, permeability, mineralogy, and fluids and image the structures
and rock types downhole. Ultimately, these developments have been one of the
main reasons why Schlumberger has become one of the largest electronics
companies in the world.
 1970: Seismic Technology (Bright-spot)
Bright-spot seismic technology used by Shell and Mobil to evaluate tracts
offered at Gulf Of Mexico lease sale.
1971: Logging System
First logging system combining gamma ray spontaneous potential, induction
spherically focused resistivity, sonic and caliper logs (Schlumberger, 1971).
Measurement-While-Drilling technology was introduced in 1978 (Teleco)
1982: 3D Seismic Technology (enhanced imaging)
In the 1990s, 3D seismic technologies, introduced in the 1982 (Veritas), became
the industry standard, with improved resolution and characterization of the
subsurface geology. In addition, the improved understanding of wavefield
physics and subsurface rock and fluid properties has led to the development of
improved acquisition parameters and processing routines with a resulting better
signal content.
A significant contributor to seismic technology improvements has been the rapid
increase in computing power and reduction in computer costs that have led to
more rigorous processing streams. In 1991, 3D seismic model was processed at
supercomputer workstation
1994: 4D Seismic
First 4D seismic was performed (CGG)
1995: Triple Combo Logging Platform
Highly-integrated "triple combo" logging platform introduced (Schlumberger)
1996: Sonic Imaging
First commercial sonic imaging job (Schlumberger)
2000: Marine Seismic
First marine seismic acquisition using single-sensor, calibrated sources and
steerable streamers (WesternGeco)
Exploration for oil and gas has progressed dramatically in the last few decades,
driven forward by the ever-increasing power and capabilities of the computer.
As a result, it now takes only a fraction of the time required 20 years ago to
find and develop oil fields. However, technology in itself does not find oil or gas
fields; it frequently requires a flash of inspiration that is the mark of a true
explorer to discover some of the major new exploration plays in remote areas.
Oklahoma, where a 1921 experiment of an Oklahoma physicist stood out, is
regarded as the birthplace of the reflection seismic technique of oil exploration.
 Career in Petroleum Technology

What Is a Petroleum Technician?

Geological and Petroleum Technicians are the backbone of the petroleum
industry, working on the front lines in collecting and analyzing samples.
Petroleum technicians are responsible for the technical aspects of working
with petroleum during the extraction and refinement processes and are part
of development and exploration teams. Technicians work with engineers and
determine the most effective and efficient ways of getting natural gas and
crude oil extracted from the ground and refined into a usable product. Most
petroleum technicians work on-site where crude oil is extracted or refined,
and positions are available with oil corporations, testing companies,
engineering consulting firms or government agencies.
What Does a Petroleum Technician Do?
Geological and Petroleum Technicians are the front line employees for the
globally important petroleum industry. Their roles are roughly broken down
into two types, though in some areas these tasks and responsibilities will
overlap. They are responsible for collecting and examining scientific data such
as geological information from the environment as it is useful to petroleum
prospecting and resource collection.
Petroleum Technician’s
OPTIONS

Lab Field Office

What Does a Petroleum Technician Do?
Those who work in the field will spend their time collecting samples of rock in
order to determine its usefulness for the relevant resources, or for indicators of
such information as the size of the pocket or location. They will use seismic
equipment, ground penetrating radar and other advanced technologies in the
gathering process. They do not just look for information on oil, but in relevant
field for gold and other precious or useful metals, minerals and hydrocarbons.
Their information may be valuable to decontamination technicians when a site
or mine is closed.

In lab or desk work, they will spend their time analyzing the data gathered by
the fieldworkers, may work with complex data sets and produce reports for
senior decision makers. They may use technology such as GIS to map large
areas for likely places to mine for resources, working with specialists who can
shed light in greater detail. They will work with both visual data provided by the
maps and previously published data to provide a comprehensive scientific
report.
Education Required
Most employers require that petroleum technicians graduate from a 2-year
college program with an associate's degree in geochemical technology, mining
technology or petroleum technology. According to the Society of Petroleum
Engineers, www.spe.org, individuals need to go through a 2-year period of
supervised work experience before being eligible for professional certification.

Skills Required
Petroleum technicians need to have a strong grasp of math, physics, and
chemistry. It is essential that technicians be able to work under pressure and
solve complex problems. Petroleum technicians must have interpersonal
skills, because they work with a variety of individuals on a daily basis. Skills
with computer technology are also beneficial, which allows petroleum
technicians to design work and keep communication lines open.
Where Does a Petroleum Technician Work?
In 2014, it was calculated that in the US there are some 16,500 Geological and
Petroleum Technicians. Around one third are employed near sites in support
activities for mining engineers and management to help them make the right
decision(s). They will work on or near the site offering guidance and producing
scientific reports for the facility.

Around one quarter work with extraction facilities directly. This will include at
the mine or rig offering day to day support and data on activities. They will
work on call and not with a 9-5 schedule, sometimes many miles away from
settlements.

Around 10% work for engineering services, typically off-site, offering advice and
support to those tasked with direct intervention in building or planning a mine
or extraction facility. Lab work accounts for around 6% of employees and the
remaining 4% are in third party technical consulting services.
Economic and Career Outlook
There are many advancement opportunities for petroleum technicians, which
include positions as supervisors, team leaders, and managers. Because of the
quantity of crude oil available in the Middle East, there are many potential
opportunities for advancement overseas.

Salary
The U.S. Bureau of Labor Statistics (BLS, www.bls.gov) reports that the median
annual salary for geological and petroleum technicians was $55,610 as of May
2015. Other agencies report median as high as $100,055 median pay for all
Geological and Petroleum Technicians in May 2015 was $55,610. Depending on
the industry, there is variation to the salary. Typically, those who work in oil and
gas extraction can expect the highest median salary. This was recorded at
$68,650. Management scientific consulting, and mining support came in around
the overall median average. Lab workers receive, on average, $10,000 less than
the median.
As with everything, there is great variation with experience, location and
demand. Lowest 10% of Geological and Petroleum Technicians earned under
$24,840 while the highest 10% earned in excess of $98,620.
The average salary for a Petroleum Technologist is $99,652 per year.

Median: $100,055
Range

Salary $43,865 - $192,933

Bonus $492 - $50,039

Profit Sharing $1.07 - $98,342

Commission $7,719

Total Pay (?) $42,681 - $237,308

Country: United States, Currency: USD, Updated: 9 Jan 2018, Individuals Reporting: 2,096

https://www.payscale.com/research/US/Job=Petroleum_Technologist/Salary
Petroleum Technician Jobs & Job Description
The petroleum industry is a multi-billion dollar industry and is renowned for its
very demanding careers. A Geological and Petroleum Technician's job will vary
depending on the hiring company.

Senior level positions, such as a Senior Geological and Petroleum Technician or

Geological and Petroleum Manager require similar job duties as an entry level
Geological and Petroleum Technician with additional duties.
The general components and duties are as follows: :

▪ Strong working knowledge of the geological features in the geographical area

of work
▪ Ability to work outdoors in varying environmental and weather conditions
▪ Ability to work in remote camps and oil fields lacking elaborate - or
sometimes basic - modern amenities
▪ Extensive travel may be associated to visit various work sites
▪ Long periods in an office may be required - data compilation and analysis may
be done inside at an office or laboratory
▪ Study the underground geology using different techniques including core
sampling, drilling, and seismic reflection in high resolution
▪ Utilize drilling equipment, large trucks, construction equipment, or any other
type of specialized equipment required to perform tasks
▪ Determine reservoir location and characteristics of oil and gas reserves
▪ Possess excellent verbal, written and technical skills to produce accurate logs
and reports of written, graphical and mapping geological information
▪ Inspect and calibrate equipment regularly
▪ Provide or outsource maintenance on equipment
What Is the Job Demand for Petroleum Technician?
Job demand is expected to grow in the region of 12% between 2014 and 2024,
according to BLS data. This is nearly double the average job growth demand in
all industries. Even with the growth of cleaner and greener technologies now a
force to be reckoned with, there is still a demand for fossil fuels to cope with
our growing energy demands. The area with the most growth globally will be
natural gas. It is cleaner, safer and cheaper than oil and coal and many untapped
resources lay beneath the surface. As production increases (and it is increasing
in some areas) more technicians will be needed to monitor the ongoing work.
Professional Organizations

American Geosciences Institute: AGI is part of the National Academy of

Sciences, providing tools and networks by which any professional working in
Geoscience can share information and advance the science
National Mining Association: The NMA is the organization advocating for
mining professionals, no matter where they work or the job they do
Association of American Geologists: Despite the title, this is a global
organization advocating for quality geoscience research, bringing together an
environment for the betterment of the industry
Summary
Education Associate's degree
Strong grasp of math and science, ability to work
Job Skills under pressure, problem solving, interpersonal
skills, and computer technology skills
Median Salary (May 2015)* $55,610 (geological and petroleum technicians)
Job Growth (2014-2024)* 12% (geological and petroleum technicians)
Source: *U.S. Bureau of Labor Statistics

Recent Job Postings

https://www.indeed.com/q-Petroleum-Technology-jobs.html
https://www.indeed.com/q-Petroleum-Engineering-Technician-jobs.html
https://ca.indeed.com/Petroleum-Technologist-jobs
https://www.eluta.ca/Petroleum-Technologist-jobs
Essential Job Market Skills

Professionalism
Professionalism
Professionalism
• Initiative
• Ethics and Integrity
• Enthusiasm
• Adaptability
• Cooperation
• Team Work
Job Market Expectations
Corporate Recruiters Assume:
You have a Solid Foundation

You have a strong background in Math/Computers

And That You Are

Professional
Self-motivated
Team Player
Excellent Communicator

Employers Expectations
▪ Immediate Impact
▪ Bottom Line Focus
▪ High Productivity
▪ Continuous Training
▪ Problem Solving Skills
PTRT 1473: Exploration and Production II

Chapter 1:
Field Life Cycle
Industry Life Cycle
 Field Life Cycle

Gaining
Exploration Appraisal Development Production
Access
 Field Life Cycle

Decommissioning
600
Gaining Access

Development
Exploration
400 Production
cumulative cashflow $million

Appraisal
200

0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
-200

-400

-600
Years

Typical life cycle; for deepwater production, expenditure could run into
$billions
 600
cumulative cashflow $million

Production Rate (mb/yr)

400


4






Production
200 2

0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
-200

-400

-600
Years
 Field Life Cycle
Development of new techniques increases the overall efficiency of cash flow
 Gaining Access Phase

Gaining
Exploration Appraisal Development Production
Access

Research Acquire
Agreement
Location Block
 Gaining Access Phase
▪ Research location: evaluate political, technical, economic, social, and
environmental aspects/factors of region of interest
o Political: regime type, stability, nationalization policy
o Economical: fiscal stability, embargoes, taxation, inflation rate,
exchange rate, repatriation of profits, local costs, manpower
o Social: civil disorder, manpower
o Technical: size of reservoir, manpower, logistics
o Environmental: legislations, precautions
▪ Identify with government agencies
o Develop agreement with National Oil Company (NOC); e.g. in
Nigeria: NNPC
o Expend effort to understand local conditions; setup a small
presence
▪ Acquire license or contract
o Know other competitors
o Assess chance of obtaining agreement
 Exploration Phase

Gaining
Exploration Appraisal Development Production
Access

Geological Seismic Exploration

Preliminaries
Surveys Surveys Drilling
 Exploration Phase

▪ Development of new techniques has increased the efficiency of

exploration; appraisal wells can now be cited with greater chance
of success
▪ However, exploration remains high-risk activity
▪ Exploration involves the search for rock formations associated
with oil or natural gas deposits, and involves geophysical
prospecting and/or exploratory drilling

Geological Seismic Exploration

Preliminaries
Surveys Surveys Drilling
 Exploration Phase
Preliminary Research
Geological Surveys
Seismic Surveys
Exploration Drilling
Decision Drill Continue?
Drill?
100
Again?
90
80
Expenditure $m

70
60
50
40
30
20
10
0
0 1 2 3 4 5 6
Years
 Exploration Phase

Problem
Estimate the loss in time and in cash if the second drilling eventually
led to production and the first drilling was at the wrong spot
 Appraisal Phase
Once petroleum is encountered during exploration phase, the
potential of the find must be accurately assessed
• Estimate size of reservoir
• Determine producibility of accumulation
• Evaluate economic value of prospect
• Provide cost-effective information (document possible options)

Gaining
Exploration Appraisal Development Production
Access

Identify Reduce Calculate

Uncertainty Uncertainty Cost-Benefit
 Appraisal Phase
Four possible options to be considered:
1. Proceed to next phase (development); profitability may suffer if
field size is under or over estimated
2. Appraise for technical development optimization (to reduce
uncertainties); profitability may be improved but production will
be delayed
3. Sell the discovery; discovery must be valued (have a price tag)
4. Do nothing; bad reputation with host government
 Development Phase

Once a well has been drilled and the presence of commercially viable
quantities of fossil fuel has been verified by appraisal, the next step is
complete or abandon the well
• abandonment if no hydrocarbons are found
• well completion if hydrocarbons are found in commercial
quantities
 Development Phase
• Development occurs after a decision is reached to construct one or
more wells from the beginning (called spudding) if field is economically
recoverable;
• It is well completion;
• It requires project management skills

Gaining
Exploration Appraisal Development Production
Access

Detailed Development
Installation Procurement
Design Plan
 Production Phase

Gaining
Exploration Appraisal Development Production
Access

Transportation Storage Processing Extraction

After well completion, the next step is actually lifting the petroleum
out of the ground and processing it for transportation.
 Production Phase
Production is the process of extracting the hydrocarbons and
separating the mixture of liquid hydrocarbons, gas, water, and solids,
removing the constituents that are non-saleable, and selling the
liquid hydrocarbons and gas. Production sites often handle crude oil
from more than one well. Oil is nearly always processed at a refinery;
natural gas may be processed to remove impurities either in the field
or at a natural gas processing plant

Three production stages:

• Build-up period (short period)
• Plateau period (2-5 years) full capacity running
• Decline period
 Decommissioning
Decommissioning or site abandonment involves plugging the
well(s) and restoring the site when a recently-drilled well lacks the
potential to produce economic quantities of oil or gas, or when a
production well is no longer economically viable.
PTRT 1473: Exploration and Production II

Chapter 2:
Agreements and Bidding
 Bidding
Invitation
• The area of interested is divided into blocks
• Government decides what blocks to include in bidding round
• Invitation is posted see http://www.nipc.gov.ng/contract.html; invitation comes
in several forms, e.g. UK uses licensing rounds (30th round licenses will be
given in 2018)
• inviting applications from companies and making awards to those bids
that promise to maximize economic recovery of the oil and gas resources
in that country
• Bid may require a minimum work program
• Signature bonus may be offered as motivation
• Bid has a deadline
• Winning bid may be announced publicly

https://www.ogauthority.co.uk/licensing-consents/licensing-rounds/offshore-
licensing-rounds/#tabs
Block Award
Angola
Eni and Sonangol have announced a new
major oil discovery in Block 15/06, located
offshore Angola.
Eni has been present in Angola since 1980. Its
current equity production is approx. 130,000
barrels of oil equivalent per day.

15 Eni has a 35% working interest and is the

31
16 Operator in Block 15/06, while Sonangol E&P
is the Concessionaire. The other partners in
the JV are Sonangol Pesquisa e Produção
32 (15%), SSI Fifteen Limited (20%), Total (15%),
Falcon Oil Holding Angola SA (5%), Petrobras
33 International Braspetro B.V. (5%) and Statoil
18 5 Angola Block 15/06 Award AS (5%).
34
July 12, 2010
http://www.energy-pedia.com/news/angola/eni-and-sonangol-
announce-major-new-oil-discovery-in-block-15-06-offshore-angola
On June 24, 2010, Total announced
that the Agge-3B.T1 well in the OML
136 licence
On 12 July 2010, Sinopec announced
that the UDELE-3 well in Block 137

The Pegi-1 discovery well

encountered 165 net feet (50.3 m) of
rich gas condensate.
ExxonMobil is the operator of the
block with a 40 percent working
interest, with the NNPC holding the
remaining 60 percent.
Cameroon

The MHLP-5, MLHP-6 and

MLHP-7 blocks are
located in the Etinde
Permit Area and the
blocks are operated by
Bowleven (75%) and the
partner is Vitol Group
(25%).

http://mergersandacquisitionrevi
ewcom.blogspot.com/2011/05/li
st-of-west-african-oil-discoveries-
in.html
 Petroleum Fiscal Systems
Fiscal Regime
The petroleum fiscal regime of a country is a set of laws, regulations and
agreements which governs the economical benefits derived from petroleum
exploration and production. The regime regulates transactions between the
political entity and investors involved. An investor is commonly an oil company,
and two or more companies may establish partnerships to share economic risks
and investment capital.

Because each country has distinctive legislation, there are theoretically just as
many different fiscal regimes as there are countries in the world with petroleum
resources, but the regimes can still be categorized based on their common
characteristics.
Elements of Fiscal System
Petroleum Agreement includes the fiscal term by which the government and
contractors receive their shares

Mineral Rights
The term mineral rights is used to denote rights to exploit minerals, including
oil and gas, resources from the underground. Onshore, in United States (and
some part of Canada), the landowner possesses exclusive rights for mineral
rights, elsewhere generally the state does. For this reason, the fiscal regime
of US is divergent from that of other countries. The petroleum licensing
system of a country may be considered interwoven with the fiscal regime,
however, a licensing system has its distinct function: to grant rights for
petroleum exploration and production to commercial entities. For most
countries, a selection of the elements of fees and taxes listed below applies

Corporate tax
Corporate tax is the standard company income tax used in many countries,
and will similarly apply to oil companies.
Bonuses
There are different flavors: signature bonus, discovery bonus, first oil sales,
production bonus. Signature bonus is a onetime fee for the assignment and
securing of a license, paid irrespective of economic success for the contractor
or licensee. Not all states use bonuses, but the government may charge a minor
fee for handling license applications.
Royalties
Royalties are shares of the extracted hydrocarbons entitled to the host state.
The state can agree with the licensees to take it in kind or in cash. This
arrangement applies to both crude oil and to natural gas, both in concessionary
and contractual license systems.

Production shares
The contractor oil company is remunerated for expenditure and shares profit
with the state or its state-owned oil company (NOC). Typically, most of the
early production will be set aside for recovering the costs incurred during
development by the contractor (cost oil), while the state receive an increasing
share of production after costs are recovered (profit oil). This is a specific
contractual license system arrangement.
Environment fees
According to Norwegian fiscal regime, a CO2 tax is paid per volume liquids and
gas burnt or emitted directly to air on the continental shelf. It is classified as a
deductible operating cost, hence reducing the other taxes paid to the state.

Surface fee
Surface fee is a yearly fee, paid per unit area occupied by the license or leased
area. This type of fee is used in Brazil for the exploration phase, and for large
production volumes, named "Occupation or Retention Fees". In Norway, it is
known as area rental fee and is only paid for "passive licenses", and for
exploration areas before a Plan for Development and Operations is submitted to
the government. An oil company can relinquish parts of an exploration area to
the state to save expenses for fees. Other countries enjoying surface fee include
Algeria, Angola, Benin, Cameroon, Mauritania.

Service Fees
The contractor receives fees for services such as exploration or production
Special petroleum tax
This is a concessionary license system taxation, to tax a high proportion of the
resource rent. In UK, it is known as Petroleum revenue tax (PRT), where a 50%
tax is accounted for income from each oil field. In Norway, special tax can be up
to 50% on top of 28% corporate tax, however, the income and taxes are
calculated for the entire portfolio of fields in which the company participates,
and losses can be carried forward from previous years. In this way, profit from
one oil field can be balanced against loss on another field, which lowers the
maximum tax burden.
Petroleum Agreements and Legal Systems

Petroleum Licensing Systems

Concessionary Contractual

Production
Service Contracts
Sharing Contracts

Pure Service Risk Service

Concession Agreement
• Government transfers its ownership of resources in the subsurface to an oil
company or a partnership of companies. The companies obtain exclusive
rights to extract crude oil and natural gas in a defined area for a limited time
• Company pays royalty and taxes on profits
• Other payments to the government may be applicable, such as bonuses,
rentals, resource taxes, special petroleum or windfall profit taxes, export
duties, state participation and others
• If more than one company are assigned a license, the government will
provide a joint operating agreement which states each partners equity
share. One of the companies is often assigned the operator role, who carry
out the actual work on behalf of the group

Contract Agreement
• Company obtains rights through government or its oil agency to explore
within a specific area during a specific contract time; company bears the cost
and risk of exploration
• Government owns the title
• Company is remunerated for expenditure and shares profit with government
Types of Contracts
Production-sharing: permission to explore during a contract time; company
bears the cost and risk of exploration; MOST COMMON
Production: contractor take over an existing or underdeveloped field; the
contractor is paid a portion of the increased production
Service contracts: Under a pure service or risk service contract, an oil and gas
company finances and carries out petroleum projects and receives a fee for
this service, which can be in cash or in kind. In cash for their services, in pure
service contacts there are agreed a fixed compensation, while in risk service
contracts the contractor accepts to share risks by linking his compensation to
the success of the project.
Buyback contracts: The contracts have an option for the contractor to buy
petroleum produced by the project at some defined terms. This type of
contract is in use in Iran.
Technical assistance contracts: This is used for development projects on oil
fields already in production, the purpose of a project may be to enhance the
production facilities, to add on extra infrastructures etc.
Production Sharing Contract (PSC)
AKA Production Sharing Agreement (PSA)
• The government, through its National Oil Company (NOC), awards the
execution of exploration and production activities to an oil company.
• The company is permitted to use most of the early production for
recovering the costs incurred during development (cost oil). Some
governments do share the cost oil with the oil company; this prolongs the
duration of the cost oil production
• After costs are recovered the "profit oil“ is produced, and its revenue is
split between the NOC and the company, for example, at a rate of about
80% for the government, 20% for the company.
• Sometimes PSC/PSA requires other payments to the host government,
such as royalties, corporate income tax, windfall profit taxes, etc.
 Typical PSC Agreement terms: Nigerian NNPC
– The contractor undertakes the initial exploration risks and recovers his
costs if and when oil is discovered and extracted.
– NNPC engages a competent contractor to carry out petroleum
operations on NNPC’s wholly held acreage
– The contractor undertakes the initial exploration risks and recovers his
costs if and when oil is discovered and extracted
– Under the PSC, the contractor has a right to only that fraction of the
crude oil allocated to him under the cost oil
– The balance of the oil, if any (after cost, equity, and tax), is shared
between the parties (profit oil).

http://www.nipc.gov.ng/contract.html
http://www.bdo.co.uk/talk-shop/oil-and-gas-production-sharing-agreements-the-potential-for-dispute