Chapter 1 Introduction to Petroleum 1
1.1 Physical Aspects 1
1.1.1 Description 1
1.1.2 Physicochemical Properties 1
1.1.3 Generation 3
1.1.4 Migration， Accumulation and Occurrence 3
1.2 The Earth’s Carbon Cycle 5
1.3 Extraction and Production Techniques 7
1.4 Safety， Health and Environmental Aspects 12
1.4.1 Safety， Health and Environmental Risks Associated with Petroleum Operations 12
1.4.2 Concluding Remarks 16
1.4.3 Health and Environmental Risks Associated with Using Oil Products and Natural Gas as Fuel 17
Chapter 2 The Petroleum Industry 19
2.1 Organization and Development 19
2.1.1 Early Activities， Early Organization 19
2.1.2 Integration and Internationalization（Western Private Sector） 21
2.1.3 Joint Ventures for Exploration and Production 25
2.1.4 State-Owned Commercial Oil Enterprises 25
2.1.5 Governments and IOGs 26
2.2 Global Expansion of Production Operations 26
2.2.1 Oil Production 26
2.2.2 Natural Gas Production 30
2.3 Proved Reserves and Ultimate Recovery 32
2.3.1 Conventional Oil 32
2.3.2 Non-conventional Oil 34
2.3.3 Oil Shale 35
2.3.4 Natural Gas 36
2.3.5 Coal 38
2.4 Political Risk 39
2.4.1 Historical Background 39
2.4.2 Description and Scope 41
2.4.3 Political Insurance 43
Chapter 3 Petroleum and the Economy 45
3.1 General Review 45
3.1.1 Oil and Natural Gas 45
3.1.2 Oil 46
3.1.3 Natural Gas 48
3.2 Factors Determining Economic Use and Value 50
3.2.1 The State and Requirements of Prevailing Technology 50
3.2.2 The Cost of Supply 51
3.2.2.1 The Components 51
3.2.2.2 High and Low Cost Unit-Production 52
3.3 Markets， Prices and Pricing Systems： Oil 54
3.3.1 The Early Kerosene Market （1860-1900） 54
3.3.2 The Pre-Global Market （1900-1975） 54
3.3.3 OPEC and Its Early Pricing Policies 57
3.3.4 The Global Oil Market （as of 1975） 59
3.3.5 Limits to Prices and Pricing 61
3.3.5.1 The Upper Price Limit 61
3.3.5.2 The Lower Price Limit 62
3.3.5.3 The Situation from 2000 62
3.4 Markets， Prices and Pricing Systems： Natural Gas 63
3.4.1 General 63
3.4.2 Marketing and Use of Associated Natural Gas 67
3.5 Taxes 67
3.5.1 Export Duties 67
3.5.2 Import Duties 68
3.6 Alternatives for Oil Products and Natural Gas 68
3.6.1 Introduction 68
3.6.2 A Review of Alternatives 69
3.6.2.1 Coal 69
3.6.2.2 Biomass 71
3.6.2.3 Non-fossil Electricity 71
3.6.2.4 Alternative Fuels for Road Transport 74
3.7 Market Outlook 75
3.7.1 Introduction 75
3.7.2 Market Outlook： Oil 76
3.7.3 Market Outlook： Natural Gas 77
Chapter 4 Government Petroleum Policies 79
4.1 An Overview 79
4.2 Common Petroleum Policies （Non-OPEC） 81
4.3 UN Climate Conferences and IPCC’s Assessment Reports 83
4.3.1 World Climate Conference （February 1979） 83
4.3.2 The IPCC WG I First Assessment Report （1990） 84
4.3.3 The Second World Climate Conference （1990） 84
4.3.4 The Establishment of the UN Framework Convention on Climate Change （1992） 86
4.3.5 The IPCC WG I’s Second Assessment Report （1995） 87
4.4 The 1997 Kyoto Protocol 87
4.5 Climate Change Petroleum Policies Post-Kyoto （OECD， EU） 89
4.5.1 A Review of the Options 89
4.5.2 The Final Choice 90
4.5.3 The Consequences for Oil and Natural Gas 92
4.6 The IPCC WG I Fourth Assessment Report （2007） 92
4.7 The Organization of Petroleum Exporting Countries 94
4.7.1 Organization， Statutes and Stated Objectives 94
4.7.1.1 Organization 94
4.7.1.2 The Statutes 96
4.7.1.3 The Solemn Declaration of 1975 96
4.7.1.4 State Participation 97
4.7.1.5 OPEC’s Long-Term Strategy as Seen in the 1980s 97
4.7.2 OPEC’s Interventions in the Global Oil Market 98
4.7.2.1 Pricing Policies from 1975 to 2000 98
4.7.2.2 Pricing Policies from 2000 Onwards 104
4.8 The European Community 108
4.8.1 Background 108
4.8.2 Restrictions on Community Level Petroleum Policies 108
4.8.3 Policy Objectives Realized 109
4.8.3.1 EC Directive 94/22/EC of 30 May 1994 109
4.8.3.2 European Energy Charter and Charter Treaty 109
4.8.3.3 Internal Market in Natural Gas 110
4.8.4 The Shaping of an Energy Policy 110
4.8.4.1 Up to the Oil Crisis of 1973 110
4.8.4.2 From the 1973 Oil Crisis up to 1986 111
4.8.4.3 From 1986-1996 112
4.8.4.4 From 1996-2006 113
4.8.4.5 From 2006 Onwards 114
Chapter 5 Petroleum Legislation of States 115
5.1 Origin， Scope and Structure 115
5.2 Principal Provisions of Petroleum Law 119
5.2.1 Definition of Petroleum 119
5.2.2 Ownership of Petroleum In Situ 120
5.2.3 Delegation of Legislative Power to the Government 121
5.2.4 Opening Up of Territory 121
5.2.5 Type and Scope of Authorization 122
5.2.6 Procedures for Applying for and Awarding Exclusive Authorizations 122
5.2.7 Size and Shape of the Area for Which an Authorization May Be Granted 122
5.3 Principal Provisions of Exclusive Licences 123
5.3.1 Standard Conditions 123
5.3.1.1 Ownership of Petroleum if and when Produced 123
5.3.1.2 Duration， Sub-periods 125
5.3.1.3 Area Relinquishment Schedule 125
5.3.1.4 Obligatory Exploration Work Programme 125
5.3.1.5 Development Plan and Production Schedule 126
5.3.1.6 Disposal of Production 126
5.3.1.7 Liability for Damages 126
5.3.1.8 Methods of Working 126
5.3.1.9 Joint Exploitation of Straddling Petroleum Reservoirs 127
5.3.1.10 Obligatory Payments 129
5.3.1.11 Royalty 129
5.3.1.12 Area Rentals 130
5.3.1.13 Cash Bonuses 130
5.3.1.14 State Net Profit Share 130
5.3.1.15 State Gross Profit Share 131
5.3.1.16 State Share of Excess Profits 131
5.3.1.17 State Participation 131
5.3.1.18 Settlement of Disputes 133
5.3.1.19 Stability of Terms 134
5.3.2 Particular Conditions 137
5.3.2.1 Description of the Licensed Area 137
5.3.2.2 Cash Bonuses to Be Paid on Certain Occasions 138
5.3.2.3 Duration of the Licence 138
5.3.2.4 Obligatory Exploration Work Programme 138
5.4 Principal Provisions of the Production Sharing Contract 138
5.4.1 Standard Conditions 138
5.4.1.1 The Parties 138
5.4.1.2 Integration into a Specific Exclusive Licence 139
5.4.1.3 Contract Area 139
5.4.1.4 Duration of the Contract and Area Relinquishment 139
5.4.1.5 Obligatory Exploration Work 140
5.4.1.6 Declaration of Commercial Discovery（General） 140
5.4.1.7 Declaration of Commercial Discovery（Non-associated Gas） 140
5.4.1.8 Operatorship， Programmes and Budgets 141
5.4.1.9 Supervisory Body 142
5.4.1.10 Cooperation between State Party and Contractor 143
5.4.1.11 Operations for the Sole Account and Risk of the State Party 143
5.4.1.12 Bearing the Costs and Risks of the Operations 144
5.4.1.13 Allocation of Oil and/or Natural Gas Production 144
5.4.1.14 Determination of Cost Recovery Oil 145
5.4.1.15 The Sharing of Profit Oil 146
5.4.1.16 Petroleum Income Tax 147
5.4.1.17 Lifting and Disposition of Oil 147
5.4.1.18 Disposition of Natural Gas 147
5.4.1.19 Purchase of State Party’s Share of the Profit Oil 148
5.4.1.20 Domestic Supply Obligation 148
5.4.1.21 Joint Exploitation of Straddling Petroleum Reservoirs 149
5.4.1.22 Stability of the Contractor’s Economic Position 150
5.4.1.23 State Participation 151
5.4.1.24 Recruitment and Training of Personnel 151
5.4.1.25 Transfer of Technology 152
5.4.1.26 Use of National Products and Services 152
5.4.1.27 Financial Guarantees 152
5.4.1.28 Liabilities 153
5.4.1.29 Assignment of Interests 153
5.4.1.30 Title to Assets 153
5.4.1.31 Confidentiality 154
5.4.1.32 Settlement of Disputes 154
5.4.1.33 Amendment 155
5.4.1.34 Termination 155
5.4.1.35 Applicable Law 156
5.4.1.36 Approval and Ratification 156
5.4.2 Particular Conditions 156
5.5 Contents of Risk Service Contracts 156
Chapter 6 Past and Current Licensing Regimes 161
6.1 US 161
6.1.1 Introduction 161
6.1.2 Federal Petroleum Legislation for the Public Domain 164
6.1.3 Federal Petroleum Legislation for the Outer Continental Shelf Lands 164
6.1.3.1 Introduction 164
6.1.3.2 Congressional Declaration 165
6.1.3.3 The System of Leasing and its Administration 166
6.1.3.4 Grant of Leases by Secretary 168
6.1.3.5 Terms and Provisions of Oil and Gas Leases 169
6.1.3.6 Oil and Gas Development and Production 170
6.1.4 Union State Petroleum Legislation 171
6.2 The Middle East Petroleum Agreements of the 1930s 173
6.2.1 Background 173
6.2.2 Original Provisions 176
6.2.2.1 Obligatory Payments （up to the Fiscal Revision of 1951） 176
6.2.2.2 Ownership of Petroleum 177
6.2.2.3 Concession Area 178
6.2.2.4 Duration and Basic Rights 178
6.2.2.5 Regulation of the Exploration Operations 179
6.2.2.6 Regulation of the Development of Discoveries and Production Schedules 180
6.2.2.7 Conduct of Operations 180
6.2.2.8 Ancillary Rights 180
6.2.2.9 Disposition of Production 181
6.2.2.10 Termination 182
6.2.2.11 Stability of Terms 182
6.2.2.12 Settlement of Disputes 182
6.2.2.13 Straddling Structures 183
6.2.2.14 Employment of Personnel 183
6.2.3 State Participation 184
6.2.3.1 Background 184
6.2.3.2 The General Agreement on Participation 185
6.2.3.3 The Sixty Per Cent to One Hundred Per Cent State Participation 186
6.2.3.4 The Special Situation in Iran 188
6.2.3.5 The Special Situation in Iraq 190
6.3 Iran （Outside Consortium Territory） 190
6.4 Kuwait （Gulf Continental Shelf） 192
6.5 Saudi Arabia （Red Sea Continental Shelf） 192
6.6 Egypt 192
6.7 Libya 194
6.8 Malaysia 197
6.9 Nigeria 198
6.9.1 Background 198
6.9.2 The Act and Its Schedules 199
6.9.3 The Petroleum （Drilling and Production） Regulations 205
6.9.4 State Participation 206
6.10 Venezuela 207
6.11 United Kingdom 207
6.11.1 Scope and Structure 207
6.11.2 The 1988/1996 Model Clauses （Schedule 4） 213
6.11.2.1 Exclusive Rights 213
6.11.2.2 Duration， Termination and Surrender of Acreage 214
6.11.2.3 Obligatory Payments 215
6.11.2.4 Working Obligations 215
6.11.2.5 Development and Production Programmes 216
6.11.2.6 Commencement and Abandonment and Plugging of Wells 218
6.11.2.7 Distance of Wells from Boundaries of Licensed Area 218
6.11.2.8 Control of Development Wells 218
6.11.2.9 Provision of Storage Tanks， Pipes， Pipelines and Other Receptacles 219
6.11.2.10 Avoidance of Harmful Methods of Working 219
6.11.2.11 Appointment of Operators 219
6.11.2.12 Fishing and Navigation 219
6.11.2.13 Unit Development 220
6.11.2.14 Directions as to Oil Fields across International Boundaries 220
6.11.2.15 Disposal of Production 220
6.11.2.16 Reports to Be Treated as Confidential 221
6.11.2.17 Indemnity against Third Party Claims 221
6.11.2.18 Restrictions on Assignment， etc. 221
6.11.2.19 Power of Revocation 222
6.11.2.20 Arbitration 222
6.12 Norway 222
6.12.1 Scope and Structure 222
6.12.2 The 1996 Act （as Amended） 224
6.12.3 Associated Agreements 246
6.12.3.1 The Training Agreement 246
6.12.3.2 The Frame Agreement 247
6.12.3.3 The Joint Operating Agreement 247
6.13 The EC Directive 94/22/EC of 30 May 1994 248
6.13.1 Introduction 248
6.13.2 Principal Provisions 249
Chapter 7 Past and Current Production Sharing Contracts 255
7.1 Indonesia 255
7.1.1 Background 255
7.1.2 The Original Indonesian Model 257
7.1.3 Amendments to the Original Model 259
7.2 Egypt 261
7.3 Syria 262
7.4 Peru 262
7.5 The Philippines 263
7.6 Libya 264
7.7 Malaysia 265
7.8 Angola 269
7.8.1 Background 269
7.8.2 The 2006 Model Production Sharing Agreement 270
7.8.2.1 Determination of Cost Recovery Oil （Article 11） 271
7.8.2.2 Determination of the Sharing of Profit Oil （Article 12） 272
7.9 The People’s Republic of China 272
7.10 Nigeria 273
7.11 Other Non-Western Countries 274
7.12 The Russian Federation 275
7.12.1 An Overview 275
7.12.2 The 1992/1995 Subsoil Law 275
7.12.3 The 1996 PSA Law 277
7.12.3.1 Scope 277
7.12.3.2 Signing of the Contract 277
7.12.3.3 Precedence 277
7.12.3.4 Rights Granted by the Contract 277
7.12.3.5 Parties 277
7.12.3.6 Licence 278
7.12.3.7 Duration 278
7.12.3.8 Awarding of Contracts 278
7.12.3.9 Drafting of Conditions by Government Commission 278
7.12.3.10 Programmes and Budgets 279
7.12.3.11 National Interest Provisions 279
7.12.3.12 Protection of the Natural Environment 279
7.12.3.13 Operator 279
7.12.3.14 Area Relinquishment Schedule 279
7.12.3.15 Management Committee 279
7.12.3.16 Production Sharing Mechanism 279
7.12.3.17 Title to Assets 280
7.12.3.18 Taxation （Profits Tax and Other Payments） 280
7.12.3.19 Bonus 281
7.12.3.20 Surface Tax 281
7.12.3.21 Royalty 281
7.12.3.22 Bank Accounts 282
7.12.3.23 Stability-of-Contract Understanding 282
7.12.3.24 Amendment of PSA Related Laws 282
7.12.3.25 Blocks Available for PSAs 282
7.12.4 The 2003 PSA Tax Law 283
Chapter 8 Petroleum Taxation 285
8.1 General Review 285
8.1.1 Introduction and Background 285
8.1.2 Taxation under a Licensing Regime 286
8.1.3 Taxation under Production Sharing Contracts 287
8.1.4 Review Income Taxes 287
8.1.4.1 Corporation Tax （Licensees） 287
8.1.4.2 Special Petroleum Income Tax （Licensees and Contractors） 288
8.1.5 Interrelation and Concurrency of Taxes 288
8.1.6 Other Taxes 289
8.1.6.1 Export Duty 289
8.1.6.2 Import Duty 289
8.1.7 Taxation as an Instrument for Responding to Changes in Oil Price Levels and Profitability 290
8.2 Past and Current Petroleum Taxation （Licences） 290
8.2.1 The Middle East Petroleum Agreements of the 1930s 290
8.2.1.1 Obligatory Payments 290
8.2.1.2 50/50 Profit Sharing 291
8.2.2 The United Kingdom 295
8.2.2.1 Obligatory Payments under the Licence 295
8.2.2.2 Payments under Income Tax Laws 296
8.2.3 Norway 298
8.2.3.1 Obligatory Payments under the Licence 298
8.2.3.2 Payments under Income Tax Laws 299
8.3 Past and Current Petroleum Taxation （PS Contracts） 301
8.3.1 Indonesia 301
8.3.2 Egypt 301
8.3.3 Malaysia 302
8.3.4 Angola 303
8.3.5 The Russian Federation 304
Chapter 9 International Regulation of Offshore Petroleum Operations 305
9.1 The Law of the Sea 305
9.1.1 Origin and Initial Development 305
9.1.2 The 1945 Truman Proclamation 306
9.1.3 Preparatory Work on Conventions 308
9.1.4 The 1958 Convention on the Continental Shelf 309
9.1.5 The 1970 UN General Assembly Resolution 2749 （ⅩⅩⅤ） 312
9.1.6 The 1982 Convention on the Law of the Sea 315
9.1.6.1 Background 315
9.1.6.2 Contents of the Convention （Parts Ⅴ，Ⅵ， Ⅷ， ⅩⅠ and ⅩⅡ） 315
9.2 Dumping Conventions 325
9.2.1 The 1972 Oslo Convention for the Prevention of Marine Pollution by Dumping from Ships and Aircraft 325
9.2.2 The 1972 London Convention on the Prevention of Marine Pollution by Dumping of Wastes and Other Matter 326
9.3 Conventions on the Protection of the Marine Environment 326
9.3.1 The 1973/1978 Convention for the Prevention of Pollution from Ships （MARPOL） 326
9.3.2 The 1974 Paris Convention for the Prevention of Marine Pollution from Land-Based Sources 327
9.3.3 The 1992 Convention for the Protection of the Marine Environment of the North-East Atlantic （OSPARCON） 327
9.3.3.1 Definitions and Scope 327
9.3.3.2 Sources of Pollution 330
9.3.3.3 The Commission 330
9.3.3.4 Annex ⅩⅩⅩ （re.Pollution from Offshore Sources） 331
9.3.3.5 Amendments 332
9.3.4 The North Sea Ministerial Conferences 333
9.3.5 The 1992 Convention on the Protection of the Marine Environment of the Baltic Sea Area 334
9.3.5.1 Definitions and Scope 334
9.3.5.2 Sources of Pollution 335
9.3.5.3 The Commission 336
9.3.5.4 Annex Ⅵ （re.Offshore Pollution） 336
9.3.6 UNEP Conventions on the Prevention of Pollution 338
9.3.7 The 1989 IMO Guidelines and Standards on Removal 339
Chapter 10 Charters and Interstate Agreements Related to Petroleum 341
10.1 The New International Economic Order 341
10.1.1 Background 341
10.1.2 The 1974 Charter of Economic Rights and Duties of States 343
10.1.3 The Issue of Nationalization or Expropriation 346
10.2 The European Energy Charter and Charter Treaty 347
10.2.1 The 1991 European Energy Charter 347
10.2.2 The 1994 Energy Charter Treaty 348
10.2.2.1 Article 1： Definitions 348
10.2.2.2 Article 3： International Markets 348
10.2.2.3 Article 6（1）： Competition 349
10.2.2.4 Article 7： Transit 349
10.2.2.5 Article 8： Transfer of Technology 349
10.2.2.6 Article 9： Access to Capital 349
10.2.2.7 Article 10： Promotion， Protection and Treatment of Investments 349
10.2.2.8 Article 11： Key Personnel 350
10.2.2.9 Article 12： Compensation for Losses 350
10.2.2.10 Article 13： Expropriation 351
10.2.2.11 Article 14： Transfers Related to Investments 351
10.2.2.12 Article 18： Sovereignty over Energy Resources 352
10.2.2.13 Article 19： Environmental Aspects 352
10.2.2.14 Article 20： Transparency 353
10.2.2.15 Article 21： Taxation 353
10.2.2.16 Article 22： State and Privileged Enterprises 353
10.2.2.17 Article 26： Settlements of Disputes between an Investor and a Contracting Party 354
10.3 Interstate Joint Development Agreements 355
10.3.1 Background 355
10.3.2 The 1959 Treaty on Antarctica and the 1991 Protocol 356
10.3.3 The 1962 Agreement between the Netherlands and Germany 360
10.3.3.1 Background 360
10.3.3.2 Main Provisions 360
10.3.3.3 Agreements of Cooperation 361
10.3.4 The 1974 Agreement between Japan and the Republic of Korea concerning Joint Development of the Southern Part of the continental Shelf Adjacent to the Two Countries 362
10.3.4.1 Background 362
10.3.4.2 Basic Provisions 363
10.3.4.3 Main Provisions 363
10.3.5 The 1989 Agreement between Australia and Indonesia 367
10.4 Interstate Unitization Agreements 370
10.4.1 Background 370
10.4.2 The 1979 Statfjord Agreement 372
Chapter 11 Cooperative Exploration and Production Agreements 375
11.1 Historical Background and Development 375
11.1.1 The Early Period 375
11.1.2 The Middle East Joint Ventures 377
11.2 The Contemporary Joint Venture 379
11.2.1 Principles and Objectives 379
11.2.2 Standard Conditions of the JOA 382
11.2.2.1 Introduction and Recitals 382
11.2.2.2 Definitions 383
11.2.2.3 Duration 383
11.2.2.4 Purpose and Scope 383
11.2.2.5 Participating Interests 383
11.2.2.6 Basic Rights， Obligations and Liabilities 384
11.2.2.7 The Operator 384
11.2.2.8 The Management Committee 387
11.2.2.9 The Non-consent Option 387
11.2.2.10 The Sole Risk Option 388
11.2.2.12 Disposition of Production 390
11.2.2.13 Default 390
11.2.2.14 Assignment of Interest 390
11.2.2.15 Withdrawal 391
11.2.2.16 Confidentiality 392
11.2.2.17 Force Majeure 393
11.2.2.18 Notices 393
11.2.2.19 Settlement of Disputes 394
11.2.2.20 Governing Law 394
11.2.2.21 Accounting Procedure 394
11.3 The Unitization Agreement 395
11.3.1 Background 395
11.3.2 Principles and Objectives 396
11.3.3 The Pre-contractual Period 397
11.3.3.1 Subjects to Be Agreed 397
11.3.3.2 Collection of Information and Cost Sharing 397
11.3.3.3 The Division of the Petroleum Reserves 398
11.3.3.4 Adjustment of STOIIP/GIIP Calculation Method 399
11.3.3.5 Re-determinations 400
11.3.3.6 Appointment of a Unit Operator 401
11.3.4 The Contents of a Unitization Agreement 401
11.3.4.1 Participating Interests 401
11.3.4.2 Defiitions 401
11.3.4.3 Purpose and Scope 401
11.3.4.4 Description and Demarcation of the Unit 401
11.3.4.5 Duration 402
11.3.4.6 Tract Participations and Unit Interests 402
11.3.4.7 Re-determinations 402
11.3.4.8 Adjustments after Re-determination 402
11.3.4.9 Unit Operator 402
11.3.4.10 Unit Management Committee 403
11.3.4.11 Unit Development Plan 403
11.3.4.12 Sole Risk Operations 403
11.3.4.13 Non-unit Operations 404
11.3.4.14 Default 404
11.3.4.15 Withdrawal 404
11.3.4.16 Assignment of Unit Interests 405
11.3.4.17 Other Conditions 405
11.3.4.18 Approval 405
11.3.4.19 Accounting Procedure 405
11.3.4.20 Annexes 406
Bibliography 407
Sources 419
Index 421