CHAPTER 1: INTRODUCTION AND BACKGROUND TO THE OIL AND GAS INDUSTRY 4
In this section, we broadly discuss the following background concepts to the oil and gas industry: 1.1 Introduction to Oil and Gas hydrocarbon system elements and the formation of oil and gas; exploration, development and production activities including the types of drilling shale gas basics 1.2 Sector organisation 1.3 Market and Pricing 1.4 Oil and Gas in Africa History and overview Future developments
CHAPTER 2: OIL AND GAS PROCESS AND KEY CONCEPTS 3
CHAPTER 3: LEGAL FRAMEWORK 3
RESOURCE OWNERSHIP AND LICENSING
Who owns the Hydrocarbon Resources
In most jurisdictions, the Government owns the mineral resources that exist within its territory as well as the right to exploit such mineral resources. Consequently, in the vast majority of jurisdictions, obtaining a licence in order to extract oil or gas will require the relevant Government’s consent. It is therefore necessary to negotiate with these Governments.
The two key exceptions to the general rule are the United States of America (USA) and Canada, where land ownership carries the right of mineral resource ownership and exploitation. In these jurisdictions it will therefore be necessary to negotiate with the relevant private landowner (except in the case of Government-owned land) to obtain exploration and production rights.
The USA is regarded as being unique among major oil and gas producing nations in that the majority of the minerals in the USA are privately owned. Consequently, most agreements for exploration and development of oil and gas are determined by private contracts that are freely negotiated between mineral owners and exploration and production companies. However, state and federal laws, particularly regulations regarding hydraulic fracturing, horizontal drilling and environmental standards, may still impact oil and gas production.
In the USA, at the federal level, the key regulators in the oil and gas sector are:
· Environmental Protection Agency
· Federal Energy Regulatory Commission (FERC)
· Department of Energy (DOE) and Office of Fossil Energy (OFE)
· Bureau of Land Management (BLM)
· Bureau of Indian Affairs (BIA)
Obtaining Oil and Gas Rights from Government
Generally, this process is granted in terms of what is referred to as “licensing rounds”, where the Government approaches companies or advertisers the intention to commence a licensing programme and requests interested companies to tender for oil and gas rights, either to explore or to produce oil over certain blocks or fields. This will usually be structured as a public procurement process, with some processes requiring bidders to pre-qualify pursuant to a Request for Qualification (RFQ) in order to show that, should its bid be successful, it has the necessary technical, financial and commercial capability required. The RFQ is usually followed by a Request for Proposal (RFP).
Most oil rights are issued pursuant to these licensing rounds, although rights can be issued through “out-of-round licensing”. This would typically be the case where a company has conducted a certain amount of geological surveys, and believes there is a pending opportunity and time is of the essence. A company may choose not to wait for the Government to issue a RFP, and to rather approach the Government directly on an unsolicited basis in an attempt to negotiate and obtain rights in respect to this area. Whether or not an unsolicited approach can be pursued will be dependent on the applicable procurement laws of the particular state.
The Government will want to be comfortable that the company has the necessary financials financial, technical and commercial capabilities in order to actually develop the resources and may request to see the company’s development plan to ensure its feasibility and that it adequately addresses any environmental or other particular issue.
Some countries will require a commitment to develop the local economy by setting certain localisation requirements in terms of equity ownership, procurement of goods or services or other social development obligations.