Petroleum Licensing and Contracting

17. Conclusion - Key points for policy-makers

The legal rights and obligations contemplated in contracts and licenses are mostly elaborated to guide host government and private investors. While it is important to develop the rules in advance, effective implementation and enforcement of these mechanisms may well become a challenge, when there is lack of capacity/qualified government officials. The national regulations in new producing states may not meet international standards, and there may be a need to support the contractual and regulatory framework with additional measures introduced and executed by long-term planning such as training of staff and local community, environmental and financial regulations, development of guidance documents and code of conduct.

A successful award procedure, which would guarantee the best outcome for the state, is where there are sufficient competition among potential investors, and the entire process is transparent and carried out on a non-discriminatory basis. The bidders should have access to all the available data on legal and fiscal structure and the areas offered for license should be made clear. Technical information may be allocated to single company temporarily and sold in packages to potential investors, as a way to recover costs of gathering geological data.

Award of contracts require significant capacity by host state authorities. In new producer states, there may be a shortage of the required expertise and advice will be sought from external experts. The host state would also benefit from imposing a “pre-qualification” criteria to avoid bidders who do not have the financial and technical competence.