Types of Agreement

This chapter aims to provide a brief synopsis of the main types of agreements encountered in the oil and gas sector and their use. These contracts will be discussed in more detail in Chapter 3.

Projects require different forms of contract at different stages of a project development covering upstream to midstream to downstream value chain. Preliminary documents could include heads of agreement, term sheets and memorandum of understandings.

The main types of agreements include:

·         Licences or Concession Agreements

·         PSA

·         Joint Operating Agreements (JOA)

·         Farm-in / Farm-out Agreements

·         Unitisation Agreements

·         Drilling Contracts

·         Decommissioning Agreements

Functions of the agreements

• Joint Operating Agreement
• Take the form of a contractual joint venture for exploration and production activities. This agreement will be used in order to deal with exploration, appraisal, development, producing, lifting and transportation. It therefore has application across the upstream, midstream and downstream phases of the industry. It provides a basis for the allocation of rights, responsibilities and liabilities under the PSA or the Concession/Licence agreements, and manages the relationship between operators and non-operators.
• Farm-in / Farm-out agreement

This form of agreement permits a company to acquire or diversify their oil and gas interests outside licensing rounds. It is often used as a means of managing asset portfolios.

• Unitisation agreement

An agreement between the various owners of a single oil field which extends into more than one licence area, in order to develop that field as a single unit. The Unitisation Agreement normally includes all the provisions of a joint operating agreement together with additional ones which are intended to establish the rights of the respective parties to the production from the field.

• Drilling contracts

There are three main types of contracts:

o   Day rate contracts are the most popular. The operator of a drilling project will pay a day rate to the drilling contractor in exchange for the contractor providing the rig, the drilling personnel and other incidentals.

o   Footage contract the drilling contractor is paid to drill to a specified formation or depth. The drilling contractor is paid a set amount per foot drilled, and is given broad control over how to do the work.

o   Turnkey contract in exchange for an agreed price the drilling contractor promises to perform specified functions. The operator does not have any discretion to control the drilling contractor, and so assumes little or no liability for damages that the drilling may cause.