PETROLEUM AGREEMENTS

There are 2 types petroleum agreement existing in the industry these days-

a) License  Agreement

b) Contract Agreement.

Some 50% are Contract Agreement and 40% are License Agreement

a) License Agreement

In this Government issues exclusive rights to an oil company. The operation is funded by license holder. The lincese holder has to pay government in form of tax and royalty.

b) Contract Agreement

In this title to produce hydrocarbon is retained by government. The company is remunerated for its costs and provided a share of profits. The most common form of this type of arrangement is called The Production Sharing Contract (PSC).

Farm in Farm Out

At any stage of field life cycle, a company may choose to reduce its share in a block by selling a fraction to another company- this is called “farming out” The com-any who accepts the share has said to be “farmed in”.

This is done

a) To share/reduce risk in the business

b) To raise capital for other ventures

c) To improve financial books

Whose oil is it??

Oil field blocks are auctioned in form of rectangular/square/orthogonal blocks. However the sub surface reservoir may be of any shape. In such a condition a peculiar problem arises once a while- drilling at the boundary of your allotted block.

As per norm the bottom hole location of the well should be within owners block. As a strategy the oil companies try to drill as many wells on the periphery to drain maximum oil from neighbor’s block.