Legal Nature of the Papua New Guinea Petroleum Arrangement

[Tree]

This is a great little paper.

http://www.paclii.org/cgi-bin/disp.pl/journals/MLJ/2003/6.html?stem=0&synonyms=0&query=application%20and%20for%20and%20pdl%20and%20png

IOC and partners have nothing to worry about regarding any license extensions, PRL or PDL approvals, JVOA approvals or selling a stake or building an LNG project as long as IOC works in good faith operating within the legal nature of the PNG O&G Act and subsequent agreements.

1)  2009 PA will not expire leaving IOC without a PA

2)  PDL's are not granted they are earned.  IOC is doing as needed to earn the approval and that cannot happen until new partners are named and project is FID ready in detail.

3)  Exploration license extensions wil be granted as IOC continues to work in good faith within the legal frmework to earn those extensions.

4)  PNG has the safest type of  O&G legal framework for IOC and others to operate within.  Subject to legislation, not case by case [political agreements.

Pet, Thanks for the response to this post. Your highlighted points from the paper are interesting for sure. For many, this is their first time seeing what you point out.   Others have known this stuff for years. I have added comments in 'green'.  After all the goal on this IOC forum is to keep things real and to attempt to keep the history documented.    There seems to be an effort to portray great risk for IOC in the areas of a 2009 PA expiry date, licenses lost and extensions not  granted and, of course, IOC's fate has been represented as being in the hands of a DPE Minister which is above the law if RDS is bribing him.   I hope you don't consider this a scolding.   And thanks for being so cordial.  More of that is needed here for sure.  

I would like to thank Tree for furnishing the link http://www.paclii.org/cgi-bin/disp.pl/journals/MLJ/2003/6.html?stem=0&synonyms=0&query=application%20and%20for%20and%20pdl%20and%20png

to we, the ignorant masses. I have gone through it and picked out a few interesting parts for you to read.

At the risk of being scolded again, I will try to high light some of the interesting parts and give a couple of comments.

The process of granting a PPL commences on application for or upon invitation by the Minister, for a PPL.[39] For the purpose of granting an exploration or a production licence, the earth’s surface is divided up into gratucular sections called-blocks, comprising five minutes longitudes and five minutes latitude.[40] An application for a PPL would be made in respect of not more than 60 blocks[41]and in special circumstances the minimum acreage could be increased to 200 blocks.[42]

The conditions under which petroleum exploration and production will be undertaken are prescribed by legislation.[43] A PPL is granted for a term not exceeding 6 years[44]and renewable for a further term of 5 years but for a reduced area,[45] and is also subject to work and expenditure requirements.[46]

Comment: This is where we are at present. We have had the first six years and we are now in the fifth year of the 5 year extension for a reduced area.

Agreed.  This should have been common knowledge as all of this has been explained multiple times over several years.  Minister does not solely invite applicants, bit he may applicants.  

A licence sets out the basic terms and conditions under which petroleum exploration will be undertaken.[47]

Where petroleum discovery is made in a exploration acreage, a declaration would be made of a location, within the exploration acreage, of a petroleum discovery. [48] Subsequent to the declaration of a location, the oil company may apply for and be granted a further extension of the exploration licence for a further period of not more than 3 years.[49]

Comment: Where a discovery has been made the license can be extended for a further 3 years. We had a discovery in PPL 238 and PPL237 (Elk/Antelope) and a further discovery in PPL237 at Triceratops. If I understand this correctly, we need a discovery in PPL 236 before March 2014 in order to qualify for a further 3 year extension. This could happen at Wahoo-1 if we make a discovery.

Agree on 237 & 238.  Those licenses are secure.  However, we do not necessarily  need a discovery in 236 before March 2014 to qualify for extension.  That would be ideal, but not necessary.  An extension can also be granted without a discovery.  Likely there will be exploration in 236 by Mrch 2014.  The Gov't has shown willingness to grant extensions to IOC if they are operating in good faith and working to satisfy license requirements.  

(b) Petroleum Retention Licence  (PRL)

An exploration licensee may also exclusively apply for a Petroleum Retention Licence (retention licence) in respect of blocks within the exploration acreage in which petroleum is located.[57] This may be done within 2 years from the date on which the blocks were declared as a location.[58]

A retention licence can be issued over "... a gas field or, a part of the gas field or, for better administration of petroleum activities." [59] The provision is designed primarily to allow holders of an exploration licence to retain and hold natural gas discoveries within the acreage pending commercial extraction of the same. However, provisions are also made for retention licence to be issued in respect of oil discoveries within the acreage "... for better administration of petroleum activities." The proviso creates scope for retention licences to be issued in respect of marginal oil fields where the reserves cannot be commercially produced.[60] That is, where a discovery is over a marginal field and it is not commercially viable to produce the petroleum discovered within the location, a retention licence may be issued over the respective blocks in the exploration acreage, which would allow the exploration licensee to retain the discovery pending further appraisal, further and additional discovery and commercial production of the petroleum discovered within the acreage.[61]

A retention licence may be granted for 5 years[62]and may be extended for further terms of 5 years at each extension.[63] Accordingly, a retention licence can be further extended over number of 5 years extension periods before commercial production can be realised. It therefore allows a holder of an exploration licence to hold onto the acreage pending commercial production of the discovery.[64]

Comment: According to the above, it appears that, once you have a PRL, it can be extended for several 5 year periods. I believe this will just apply to the area of the PRL and not to the entire PPL area.

Agree.  PRL 15 is secure.  PRL 15 was carved out to sell as it alone supports an LNG project.  Ambitious PPL 237 drilling plans may locate other locations which can be deemed PRL's.

C. Charecteristics of Petroleum Agreements

The PNG petroleum agreements deal with matters, which include State equity participation, foreign currency management, local business development and procurement of local goods and services. For the purpose of this paper, particular consideration is given to those provisions dealing with State equity participation.

The State takes its share of the revenue from production and sale of petroleum, primarily from petroleum taxation computed and collected under the Income Tax Act,[71] petroleum royalty and from direct equity participation in the project. In computing the State’s share of the petroleum produced or the revenue derived from sale of petroleum produced within the acreage, and the oil companies’ share of the petroleum produced, the amount taken up by the State pursuant to the exercise of its rights to take equity participation in the petroleum project within a license area is regarded and treated by oil companies as the State’s share of the oil or revenue. Accordingly, the State equity participation policy regime is an important element of the State’s petroleum policy regime, and that which forms the core of the petroleum agreement.

The State in taking up equity in the project, through its Nominee, also becomes a joint venturer and a joint licensee of the PDL . The non-State joint venturers finance the Nominee’s pro rata percentage of exploration, development and other cost and expenditures under the "carried interest" arrangement. Under the arrangement, the amount owed to the oil companies by the Nominee is "deemed" as a loan from the oil companies to the Nominee at a commercial interest rate, to be debited from the Nominee’s revenue from its proportionate share of the petroleum produced within that PDL .[85]

Comment:  Upon the granting of the PDL the State will owe IOC for 22.5% of the sunk costs for the drilling of  wells, building roads etc in PRL 15 but these cost will be carried by IOC (or the operator and partners) and the costs will be recovered in the future from the State’s share of production.

Agree.  This is what the O&G Act requires.  This too should be common knowledge as it has been on the MBs for years.  

Production Development License (PDL)

If significant petroleum discovery is made that can sustain commercial production, a PDL , which is the production licence, will be issued to the holder of the PPL.[65] The basic requirement of a PDL is fixed by legislation.[66] A PDL is issued to the holder of an exploration or retention licence for a period not exceeding 25 years, renewable for a term not exceeding 20 years.[67]

Comment: So a PDL is good for at least (25 +20) 45 years.

Agree.  From O&G Act.  Been discussed for years.

A PDL confers on the licensee the exclusive rights to explore for petroleum within the licence area, to produce petroleum within the licence area, to sell or otherwise disposed of petroleum so produced and to carry out such other works in the licence area as are necessary to conduct petroleum operations in accordance with the terms of the licence.[68] The works necessary to carry out petroleum operations include construction of flow lines and gathering lines, roads, bridges and other civil works, airports, seaports and related facilities.[69]

Comment: In the case of a gas discovery (which can’t be barged down the river), I believe we will have to have the proper licenses for the pipelines and plants before we start construction and laying pipe.

Agree to a point.  Lack of PDL does not mean pre-construction investing as IOC has been performing to de-risk, accelerate and make cheaper the LNG construction cheaper cannot occur or is a risky endeavor.  It is a pre PDL logical investment.  PDL is guaranteed granted as IOC meets the PDL license requirements within O&G Act.

Have a good day/weekend.

All need to read Part B of the above linked report.