Petroleum Exploration and Production Rights

WORLD BANK WORKING PAPER NO. 179
Petroleum Exploration
and Production Rights
Allocation Strategies and Design Issues
Silvana Tordo
with David Johnston
and Daniel Johnston
THE WORLD BANKWORLD BANK WORKING PAPER NO. 179
Petroleumxploration
androductionights
Allocationtrategiesndesignssues
Silvanaordo
withavidJohnston
andanielohnston
























WP_179_web_10-29-09.pdf 1WP_179_web_10-29-09.pdf 1 10/29/2009 12:45:01 PM10/29/2009 12:45:01 PMCopyright010
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WP_179_web_10-29-09.pdf 2WP_179_web_10-29-09.pdf 2 110/29/2009 12:45:15 PM0/29/2009 12:45:15 PM


Contents
Acknowledgments...................................................................................................................vi
Acronymsndbbr eviations..............................................................................................vii
Executiveummary ............................................................................................................. .....ix
1.hexploration,evelopment,nd roductionfe troleumesources.................1
Uncertaintyndisk:eylementsf PetroleumExploration,evelopment,
androducti on............................................................................................................1
Theecisionoxploreor Petroleum Resources.........................................................2
Explorationndntere mporalepletion olicies.......................................................3 dnteren erationalquity ................................................................... 3
Explorationndheaximizationf theesourc eent...............................................4
Whoarriesheisk fxploratio n?..............................................................................5
2.lternativepproachesohe rantingfetroleumxploration,
Development,ndroduction ights............................................................................ 8
Legalegimesoret roleum&P...................................................................................8
Concessions................................................................................................................... .9
Productionharingont racts..................................................................................... 10
Servicegreem ents......................................................................................................10
Fiscalegimesoret roleum&P.................................................................................10
Taxationnstrumentsnd Methods.............................................................................11
Comparisonfeyiscallements ofoncessions,SCs, ndAs...........................12
Thellocationfetroleu mE&Pights ...................................................................... 12
Openoorystems ..................................................................................................... 14
Licensingoun ds.........................................................................................................14
Biddableregotiable actors.....................................................................................17
Someountries’ Experience.........................................................................................20
3.heesignfppropri atellocationystems ............................................................ 29
Allocationystem Objectives ..........................................................................................29
Consistencyithetrole umectorolicy .................................................................. 30
Selectingheostfficient perator..........................................................................31
Keepingompliancenddministrat iveosts Down................................................33
Minimizingistortionary Effects................................................................................35
Addressingarket Deficiencies...................................................................................36
Keyssuesnllocationys temsesign ...................................................................... 38
Openoorystemsricensi ngounds? ................................................................. 38
Auctionsrdministrative Procedures?..................................................................... 38
Whichormfuctionsoreikely oeadoigher ids?.................................39
Arelanningndommitment Important? ...............................................................40
iii
WP_179_web_10-29-09.pdf 3WP_179_web_10-29-09.pdf 3 10/29/2009 12:45:15 PM10/29/2009 12:45:15 PMiv Contents
Whateallyattersorheesign ficensing Rounds?.........................................43
Whatoeshisean nractice? .............................................................................45
4.onclusions ................................................................................................................ ..........48
Whatypefllocationyste msest?...................................................................... 48
WhyooManyystems Lookoimilar? ................................................................ 49
Isystemesign Important?...........................................................................................49
Appendixes.................................................................................................................... ...........50
I.ifeyclefypicalil ndasro ject....................................................................51
II.ainiscaln struments:dvantages ndisadvantages .........................................53
III.orldverage Fiscalerms57
IV.electountri es’xperience ..........................................................................................58
Australia.............................................................................................................................58
Licensing policy............................................................................................................5 8
Licensingisto ry.......................................................................................................... 59
Generalbse rvations....................................................................................................59
Unitedingdom ............................................................................................................... 62
Licensing policy6 2
Licensingisto ry 63
Generalbse rvations64
Unitedtates ................................................................................................................. .....67
Licensing policy............................................................................................................6 7
Licensingisto ry 68
Generalbse rvations69
Brazil........................................................................................................................ ...........73
Licensing policy7 3
Licensingisto ry.......................................................................................................... 74
Generalbse rvations....................................................................................................78
Mexico ........81
Licensing policy8 1
Licensingist