Petroleum Legislation

The SADR will use a Production Sharing Contract regime to govern petroleum operations within their territorial boundaries. There are two (2) key legislative documents governing the petroleum industry operations in the SADR:

I. Production Sharing Contract ("PSC")

And the

II. Production Sharing Contract Assurance Agreement ("AA")

The PSC Assurance Agreement (AA) clarifies certain conditions subsequent relating to sovereignty and the introduction of enabling legislation that must be satisfied before the first exploration period can commence. It also stipulates a schedule of administrative fees, term of the agreement, taxation regime and governing law in the intervening period leading up to the commencement of the first exploration period.

In addition to the Assurance Agreement, the SADR will issue prospective licensees with a Model PSC.

In line with the agreed PSCs the following general provisions should be noted and adhered to:

  • No Petroleum activity may be undertaken in the SADR except pursuant to, and in accordance with the Petroleum Regulations.
  • All acreage in the SADR is held on behalf of the State by the State Petroleum Authority.
  • The contractor shall have:

I. The exclusive right to search for and produce the oil and gas and,

II. The right to carry out exploration and development activity either directly or through an agent.

 

Key PSC Parameters

Key parameters of the Model Production Sharing Contract for the SADR are:

  • Exploration Terms - The Work Programme Commitment should be phased into three exploration sub periods each of three (3) years.
  • Exploitation Term - Twenty five (25) years from award of exploitation agreement
  • Work Obligation for these three (3) terms are negotiable and part of the award assessment.
  • Cost Recovery - cost recovery ceiling shall be negotiable and part of the award assessment.
  • Profit Sharing  Profit Sharing of "Remaining Production" (Profit Oil) will be based on the average daily production rate (in barrels of oil per day (bopd)) for a period of 30 consecutive days actually achieved by the Contractor from the Delimited Area.
  • Royalty Rate - A royalty shall be payable to the State at a flat rate of five percent (5%) of the Total Crude Oil and Natural Gas produced from the Delimited Area.
  • Area Surface Rentals - shall be as follows:

First Exploration Period US$0.50per sq km.
Second Exploration Period US$1.00 per sq km.
Third Exploration Period US$2.00 per sq km
Development & Exploitation US$200.00 per sq km

  • Tax Rate - The State will be responsible for payment of the Contractors income tax.
  • State Participation - The State's participation (back in rights) is negotiable and part of the award assessment.
  • Signature Bonus - The Signature Bonus shall be payable following the satisfying of the conditions subsequent and is not recoverable. The Signature Bonus will be negotiable.
  • Production Bonuses - The Production Bonuses are negotiable and part of the award assessment.
  • Annual Training - Training fees are negotiable and part of the award assessment.
  • Operatorship - When granting a PSC, the SADR shall appoint or approve an Operator. Any change of Operator must be approved by the Authority. An Operator must be a party to the PSC having an interest in the block and would cease to be the Operator if its interest terminates or expires.


Key AA Detail

The key details covered in the AA are:

  • Term - The term of the AA is ten (10) years and extendable by mutual agreement.
  • Governing Law - the governing law in the intervening period prior to satisfying of the conditions subsequent is English law.
  • Conditions Subsequent - What they are and how satisfied
  • Annual Administration Fee - Administration fee is negotiable and part of the award assessment.