Petroleum Licensing and Contracting

4. Model clauses and standardisation

To be effective and efficient, any regulation on licensing or contracting should articulate the mandate, authority, and responsibility of the different agencies engaged in the licensing and contracting process, and aim to avoid abuse of discretionary power.

One way to tackle the latter is to provide transparency of value in granting awards – whilst respecting commercial confidentiality – by publishing and standardising the licencing process and contracts. For example, UK hydrocarbons licences use a model licence for the basic relationship between the host state and investors with limited scope for negotiation. Typically, major extractives sector companies would have their own database of model or signed contracts, or would use an in-house model agreement to kick start negotiations. However, it will assist government in negotiations to have developed its own model at the start of discussions. Having a functioning model contract and/or clauses in regulations is therefore particularly important for governments who have a shortage of well qualified staff to agree on the term of host government agreements with foreign investors.