Development of a Petroleum Contractual Strategy Model

The development of a petroleum exploitation strategy is essential for any country, which needs to develop its indigenous petroleum resources. A petroleum exploitation strategy is the series of policies relating to licensing, taxation, royalty, and general legal instruments i.e. contractual agreements. Contractual agreements developed by the state in order to ensure the orderly development of petroleum exploration and production. In the absence of a clear petroleum exploitation strategy, the international oil companies would not be able to assess the political and economic risks involved in any petroleum exploitation venture, no matter how low the technical risks are. Since the International Oil Companies are major sources of the intensive capital, and sophisticated technologies needed for exploration and development of petroleum resources, it is essential for a country to formulate a coherent and well-balanced petroleum exploitation strategy. This should be consistent with its social and economic goals and at the same time allow the international oil companies to generate economic profits that in some way relate to the level of risk involved in obtaining these profits. This research project has focused on the study of the different petroleum contractual agreements between host countries and international oil companies worldwide, and has culminated by the development of a contractual strategy model for the exploitation of the petroleum resources. The development of the model has been preceded by a comparative and evaluative analysis of the international and host country petroleum agreements. The main features, advantages and disadvantages of each type have been summarized and tabulated. The suitability of the different agreements, in the view of the rapidly changing environment of the petroleum industry, has been evaluated. The Model required the development of eight different strategies, which relate to the possible combinations of three strategic factors that were found to be of the greatest importance. It has been proposed to use this model to evaluate and guide the development of the future Middle East petroleum exploitation strategies.