GEOLOGIA DO TIMOR 5

Andrew Caddy Andrew Caddy ManagingManaging DirectorDirector –– Finance Finance

Timor Timor SeaSea DesignatedDesignated AuthorityAuthority

Fiscal and Contractual Overview

Legal & Fiscal FrameworkLegal & Fiscal Framework

•• Drafting of legal framework began in 2003Drafting of legal framework began in 2003–– Multi disciplined team comprising specialists in:Multi disciplined team comprising specialists in:

•• LegalLegal•• CommercialCommercial•• TechnicalTechnical

–– Brought experience from working with other Brought experience from working with other governments and with major oil companiesgovernments and with major oil companies

–– Representatives from TimorRepresentatives from Timor--Leste, Australia, Leste, Australia, US, Norway, Canada, Portugal, and the UKUS, Norway, Canada, Portugal, and the UK


•• Fundamental drafting principles:Fundamental drafting principles:–– Design both regimes to be as similar as Design both regimes to be as similar as

possiblepossible•• Why? Administrative simplicityWhy? Administrative simplicity

–– Make attractive: structurally and fiscallyMake attractive: structurally and fiscally•• stable, stable, •• uncomplicated & uncomplicated & •• competitivecompetitive

–– Recognise transparency principles Recognise transparency principles –– Allow state participation for TimorAllow state participation for Timor--LesteLeste

•• (not including JPDA)(not including JPDA)

The FrameworkThe Framework

Empowering LegislationEmpowering Legislation

TimorTimor--Leste Petroleum FundLeste Petroleum Fund

TL & Australian taxation TL & Australian taxation (Treaty tax relief)(Treaty tax relief)

Petroleum Taxation ActPetroleum Taxation Act

Model PSCModel PSCModel PSCModel PSC

Petroleum Mining CodePetroleum Mining CodePetroleum ActPetroleum Act


Timor Sea TreatyTimor Sea TreatyConstitutionConstitution

JPDAJPDATimorTimor--LesteLeste


•• TimorTimor--Leste constitution allocates Leste constitution allocates ownership of all resources (including ownership of all resources (including petroleum) to the Statepetroleum) to the State

•• Timor Sea Treaty allocates ownership of Timor Sea Treaty allocates ownership of petroleum resources in the JPDA petroleum resources in the JPDA 90% to Timor90% to Timor--Leste and 10% to AustraliaLeste and 10% to Australia


•• Structures of the Structures of the TimorTimor--Leste Petroleum Act Leste Petroleum Act andand the Petroleum Mining Code the Petroleum Mining Code areareessentially similar:essentially similar:–– The The TimorTimor--Leste Petroleum ActLeste Petroleum Act empowers a empowers a

Ministry, presently the Ministry of Natural Resources, Ministry, presently the Ministry of Natural Resources, Minerals and Energy Policy, to Minerals and Energy Policy, to authoriseauthorise petroleum petroleum operations including exploration for and operations including exploration for and development of petroleum via a PSC and to enforce development of petroleum via a PSC and to enforce lawslaws

–– The The Petroleum Mining CodePetroleum Mining Code empowers the TSDA to empowers the TSDA to authoriseauthorise petroleum operations including exploration petroleum operations including exploration for and development of petroleum in the JPDA via a for and development of petroleum in the JPDA via a PSC and to enforce lawsPSC and to enforce laws


•• The modelThe model Production Sharing Contract Production Sharing Contract will be the basis for all contracts:will be the basis for all contracts:–– In the case of TimorIn the case of Timor--Leste, the PSC will be made Leste, the PSC will be made

between the Ministry and the petroleum company between the Ministry and the petroleum company concernedconcerned

–– In the case of the JPDA, the PSC will be made In the case of the JPDA, the PSC will be made between the TSDA and the petroleum company, between the TSDA and the petroleum company, and requires the approval of the Joint Commissionand requires the approval of the Joint Commission

–– Ownership of petroleum remains with the Ministry Ownership of petroleum remains with the Ministry or the TSDA until it passes the field export pointor the TSDA until it passes the field export point


•• State participationState participation

–– At the time of the declaration of a commercial At the time of the declaration of a commercial discovery, Timordiscovery, Timor--Leste may elect to take Leste may elect to take up toup to20% equity through a State20% equity through a State--owned contractor (if owned contractor (if enacted)enacted)

–– The StateThe State--owned contractor will pay its equitable owned contractor will pay its equitable share of costs from the date of making the share of costs from the date of making the election.election.


•• Under a PSC petroleum companies:Under a PSC petroleum companies:–– will have an will have an exclusive rightexclusive right in a defined area, to in a defined area, to

explore for, develop, and market petroleum;explore for, develop, and market petroleum;

–– will pay for and provide all required human, will pay for and provide all required human, financial and technical resources needed for financial and technical resources needed for those purposes; and those purposes; and

–– will, in exchange, receive a share of the will, in exchange, receive a share of the petroleum from the areapetroleum from the area to recover the cost of to recover the cost of their investment, plus a reasonable return, their investment, plus a reasonable return, through a defined cost recovery and profit through a defined cost recovery and profit sharing formula. sharing formula.

The Model PSC Exploration PeriodThe Model PSC Exploration Period

606040402020Surface RentalsSurface Rentals

($US/km($US/km22)/year)/year

100%100%25%25%25%25%Relinquishment * Relinquishment *

(% of Initial (% of Initial Contract Area)Contract Area)

222233YearsYears

33rdrd22ndnd11ststExploration PeriodExploration Period

***Note:1. Except areas retained under approved plans for Appraisal and

Development Plan or designated as a Gas Retention Area2. Additional relinquishment allowed at the end of any year and can be

credited against minimum relinquishment requirements in the future.

3. Cannot relinquish without fulfilling minimum work obligations

•• Gas Retention AreaGas Retention Area–– If a gas discovery has been made but is not commercially If a gas discovery has been made but is not commercially

viable, then a retention period of 5 years is allowedviable, then a retention period of 5 years is allowed–– In the JPDA, but not TimorIn the JPDA, but not Timor--Leste, an oil retention period of up Leste, an oil retention period of up

to 5 years may also be allowedto 5 years may also be allowed

•• Minimum Work ProgramMinimum Work Program–– A work program will be included in each PSCA work program will be included in each PSC–– Work program will be for a 7 year period Work program will be for a 7 year period –– First 3 year work program is minimum requiredFirst 3 year work program is minimum required

•• Discovery & AppraisalDiscovery & Appraisal–– Obligation on contractor to diligently appraise all discoveriesObligation on contractor to diligently appraise all discoveries–– When a discovery made, the contractor shall submit an When a discovery made, the contractor shall submit an

Appraisal work program to the Ministry or TSDAAppraisal work program to the Ministry or TSDA

The Model PSCThe Model PSC

•• Declaration of CommercialityDeclaration of Commerciality–– Contractor may declare a discovery commercialContractor may declare a discovery commercial–– Must submit data & information in relation to the Must submit data & information in relation to the

discovery area as required by the Ministry or TSDAdiscovery area as required by the Ministry or TSDA–– Discovery area can be adjusted by agreement Discovery area can be adjusted by agreement

between the Contractor and the Ministry or TSDAbetween the Contractor and the Ministry or TSDA

•• Development PlanDevelopment Plan–– No more than 12 months after commercial No more than 12 months after commercial

discovery, contractor must submit a Development discovery, contractor must submit a Development Plan to the Ministry or the TSDAPlan to the Ministry or the TSDA

–– The Development Plan must be accompanied by a The Development Plan must be accompanied by a Security Decommissioning AgreementSecurity Decommissioning Agreement


•• DecommissioningDecommissioning–– As part of the development Plan a Decommissioning As part of the development Plan a Decommissioning

Agreement must be submitted for approval.Agreement must be submitted for approval.–– The agreed estimates of the money required for The agreed estimates of the money required for

decommissioning can then be recovered from production decommissioning can then be recovered from production –– The contractor is required to obtain Decommissioning The contractor is required to obtain Decommissioning

Security equal to the sum of the decommissioning cost Security equal to the sum of the decommissioning cost reserve.reserve.

•• Domestic market obligationDomestic market obligation–– Under the TimorUnder the Timor--Leste model PSC, in the event of Leste model PSC, in the event of

National need, a requirement exists for petroleum to be National need, a requirement exists for petroleum to be used to meet the needs of the local market.used to meet the needs of the local market.


•• AssignmentAssignment–– No assignment can take place without No assignment can take place without

written agreement by the Ministry or TSDAwritten agreement by the Ministry or TSDA–– PSC requires companies to be sole PSC requires companies to be sole

purpose for the contract purpose for the contract

•• 33rdrd party accessparty access–– The PSC requires the contractor to provide The PSC requires the contractor to provide

33rdrd party access to all facilities, installations party access to all facilities, installations and equipment in the contract area on and equipment in the contract area on reasonable terms & conditionsreasonable terms & conditions


•• PSC fiscal terms:PSC fiscal terms:–– Identical rules for TimorIdentical rules for Timor--Leste and Leste and

JPDAJPDA–– First 5% of production revenues are First 5% of production revenues are

allocated to the TSDA and Timorallocated to the TSDA and Timor--LesteLeste–– Contractor recovers costs from 95% of Contractor recovers costs from 95% of

revenues remainingrevenues remaining–– Eligible unrecovered costs are allowed Eligible unrecovered costs are allowed

an annual an annual ““UpliftUplift”” (equal to (equal to long term long term bond rate + 11%bond rate + 11%) )

The Fiscal FrameworkThe Fiscal Framework

The Fiscal FrameworkThe Fiscal Framework

•• PSC fiscal terms (continued):PSC fiscal terms (continued):

–– Costs may be classified as Exploration, Costs may be classified as Exploration, Development, Operating or Decommissioning; Development, Operating or Decommissioning; however, all eligible costs are treated the samehowever, all eligible costs are treated the same

–– Revenue remaining after cost recovery (Profit Revenue remaining after cost recovery (Profit Petroleum) is shared 40% to TimorPetroleum) is shared 40% to Timor--Leste/TSDA Leste/TSDA and 60% to Contractor and 60% to Contractor

–– Detailed accounting procedures are set out in an Detailed accounting procedures are set out in an annex to the PSCannex to the PSC

•• Specifies which costs are allowed to be Specifies which costs are allowed to be recoveredrecovered

•• No separate accounting between oil & gasNo separate accounting between oil & gas

Share of productionUnincorporated JV

TL Ministry

Petroleum sales

Royalty - 5 percent

Cost recovery

Uplift

Profit oil

Income Tax

Timor-Leste Petroleum

Fund

60% 40%

Timor-Leste Production SharingTimor-Leste Production Sharing

Share of productionUnincorporated JV

TSDA

Petroleum sales

Royalty - 5 percent

Cost recovery

Uplift

Profit oil

Income Tax

Timor-Leste Petroleum

FundAustralia

90%

10%

JPDA Production SharingJPDA Production Sharing

Application Process - JPDAApplication Process - JPDA

Bidding Guidelines –Essential ElementsBidding Guidelines –Essential Elements

•• Fixed nonFixed non--refundable processing fee of refundable processing fee of US$ 10,000US$ 10,000

•• One application per contract area, per One application per contract area, per companycompany

•• Demonstrate the willingness to enter into Demonstrate the willingness to enter into a joint venture agreementa joint venture agreement

•• Application to include technical and Application to include technical and financial details and satisfy legal financial details and satisfy legal requirementsrequirements

•• 7 year work programme with the first three 7 year work programme with the first three years being mandatoryyears being mandatory

Bidding Guidelines - continuedBidding Guidelines - continued

•• Inclusion of technical ability relevant to Inclusion of technical ability relevant to operating in the proposed contract areaoperating in the proposed contract area

•• Information on the short and long term Information on the short and long term financial commitments supported by financial commitments supported by annual reports from the past three yearsannual reports from the past three years

•• Include proposals for the use of TimorInclude proposals for the use of Timor--Leste goods and services, training, Leste goods and services, training, employment and transference of employment and transference of technologytechnology

•• Statement of the applicantStatement of the applicant’’s acceptance of s acceptance of the PSC the PSC

Bid Assessment GuidelinesBid Assessment Guidelines

•• Assessment based on the bidding guidelinesAssessment based on the bidding guidelines•• DA to look at technical work programme, financial DA to look at technical work programme, financial

capability and future viability of the joint venturecapability and future viability of the joint venture•• The work programme to be consistent with the The work programme to be consistent with the

perceived perceived prospectivityprospectivity•• Where bids are similar based on the above criteria, Where bids are similar based on the above criteria,

additional criteria will be applied as follows:additional criteria will be applied as follows:-- TT--L participationL participation-- Training and transfer of technology Training and transfer of technology -- Content of the work programme for years 4Content of the work programme for years 4--77

•• Bidding and Assessment Guidelines to be released Bidding and Assessment Guidelines to be released on the TSDA websiteon the TSDA website

GEOLOGIA DO TIMOR 5

Education

development of petroleum

psc petroleum companies

market petroleum

timorleste petroleum

petroleum operations

petroleum company

timorleste model psc

model psc decommissioning