Different contracts

1. CRITICALLY DISCUSS HOW TO CHOOSE
BETWEEN A SERVICE CONTRACT AND A
JOINT VENTURE FOR A 50-250 MILLION
DOLLAR OIL AND GAS TRANSACTION. CITE
EXAMPLES FROM AFRICA AND ASIA.
By:
Emilios Frangos
Stephanie Polykarpou
Tope Ajao
Yasmin Ben Umar
Yiannis Philotheou

2. INTRODUCTION:
• Joint Ventures and Service Contracts have both been chosen in the past for different
reasons in different countries.
• When deciding on what contract is most appropriate to use a number of factors have
to be determined in order to make sure that the correct and most appropriate
contract for the circumstances is applied. In order to achieve this a number of factors
have to be examined. The following points are to be discussed in order to draw a
conclusion during this presentation.
• How big is the transaction that is to be discussed?
• What is a Joint Venture
• What is a Service Contract
• What are the advantages and disadvantages of each.
• Examples of application of each individual contract in different countries.

3. JOINT VENTURES: THE DEVELOPEMENT
• It developed when the
Concession agreement
disappeared.
• As a result of the Host countries
not having an active role in their
resources.
• The formation of OPEC
• UN resolution from 1952to 1966
aided its development(Principle
of Permanent Sovereignty)

4. PHASES OF A JOINT VENTURE
• Planning : this defines commercial rationale and identifies partners.
• Formation :here legal and commercial structures are built.
• Operation: joint venture are operated and managed on an ongoing basis.
• Dissolution: it involves winding up of JV.

5. LEGAL VEHICLES FOR FORMING A JOINT
VENTURE:
• Contractual Joint Venture: here no separate legal entity is formed and it
purely a contract.
• Joint Venture Corporation: here legal affairs is incorporated. JV governed by
corporation law of relevant state.
• Joint Venture Partnership: governed by partnership laws of relevant state. It
can either be written or oral but usually written in the oil and gas industry.

6. ADVANTAGES OF JVS ON PART OF
GOVERNMENT.
• It is not alone in the decision making and
responsibility for project.
• It counts on the expertise of a Major Oil
Company.
• Shares profits and remunerations like
taxes and royalties

7. DISADVANTAGES FOR GOVERNMENT.
• Risks and cost are also shared.
• Responsibility comes with potential liability including environmental damage.
• It takes a long time to negotiate.
• It requires more legal advice from exerts in petroleum contracts which will
cost more for both parties.

8. SERVICE CONTRACTS:
• Private company perform services for the government
• Contractor provides all capital
• Is exploration is successful the costs are recovered
• All production belongs to the government
• Contractor bears all the risks

9. SERVICE CONTRACTS CONTINUED.
• Types of Service Contracts:
• Risk service contracts
• Pure service contracts
• Technical assistance contracts
• Why service contracts?
• Government has greater control over the
project
• The contracting company does not share any
profit oil
• For small reserves.

10. EXAMPLES OF RISK SERVICE CONTRACTS IN
ASIA AND AFRICA

11. EXAMPLES OF SERVICE CONTRACTS IN ASIA:
• Coastal Energy Company
committed itself to a Risk
Service Contract in Malaysia
with respect to 3 marginal fields
involving 320million dollars for
3years
• See Coastal Energy Company
presentation: Malaysian Risk
Service Contracts(July 2012)
• (http://www.coastalenergy.com/o
perations/offshore-malaysia.)

12. EXAMPLES OF SERVICE CONTRACTS IN AFRICA
• Agip committed itself to
service contract in Agbara
field and Okono/okpoho fields
in Nigeria
• Nigeria Field Trip: Claudio Descalzi
Senior Vice President for Operations
Italy, Africa and Middle East E&P
Division (October 2002)

13. EXAMPLES OF SERVICE CONTRACTS IN ASIA
• Risk service contracts are called
buyback contracts in Iran.
• In march 1995, a buyback contract was
awarded to Conoco for the development
of the offshore Sirri A and E fields.
• HOW COMPETITIVE IS THE IRANIAN BUY-BACK
CONTRACTS IN COMPARISON TO CONTRACTUAL
PRODUCTION SHARING FISCAL SYSTEMS? HOOMAN
FARNEJAD ∗
• hfarnejad@marathonoil.com

14. CONCLUSION:
• As International Oil Company:
• Service contracts seem to be more appropriate for the given circumstances
• This has been decided on the following factors:
• That setting up a joint venture would be way to expensive for such a relatively small
deal. Cost of expert legal advice and time spent between IOCs to know each other
would make service contracts a more easily acceptable choice.
• Basically the cost involved in a modern day oil and gas joint venture deal surpasses
100million dollars. For example, Shell Nigeria (shell petroleum development company)
from the year 2006 – 2010 has contributed at least 31billion dollars in respect to its JV
agreement with Nigeria.
As a Host Country
• In recent times, a service contract can easily apply to such a transaction involving such
an amount. As usual, a host country would still be happy to see the IOCs bear all the
risk involved.

16. REFERENCES
Contracting and regulatory issues in the oil and gas and metallic minerals industries
• Michael Likosky
• http://archive.unctad.org/en/docs/diaeiia20097a1_en.pdf
• The ABCs of Petroleum Contracts: License-Concession Agreements, Joint Ventures, and
Production-sharing Agreements
• Jenik Radon
• http://openoil.net/wp/wp-content/uploads/2011/12/Chapter-3-reading-material1.pdf
• Joint Venture Contracts (JVCs) among Current Negotiated Petroleum Contracts: A Literature
Review of JVCs Development, Concept and Elements by Talal Al Emadi
• https://www.law.georgetown.edu/academics/law-journals/gjil/upload/6-al-emadiFIXED.pdf.