2014-07-08- oil & gas in tl

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Timor-Leste Petroleum Sector: Overview, challenges and opportunities Ricardo Silva 11 July 2014

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Page 1: 2014-07-08- Oil & Gas in TL

Timor-Leste Petroleum Sector: Overview, challenges and opportunities Ricardo Silva

11 July 2014

Page 2: 2014-07-08- Oil & Gas in TL

Legal Framework

Page 3: 2014-07-08- Oil & Gas in TL

Regulation of petroleum operations

• Constitution, Laws, and Regulations

- Constitution of the Democratic Republic of Timor-Leste, of 22

March 2002

- Relationship between different statutes

• International Treaties

LEGAL FRAMEWORK

Page 4: 2014-07-08- Oil & Gas in TL

CDRTL

• Article 139 – Natural Resources “1. The resources of the soil, the subsoil, the territorial waters, the

continental shelf and the exclusive economic zone, which are

essential to the economy, shall be owned by the State and shall be

used in a fair and equitable manner in accordance with the national

interest.” - The State is the owner of all natural resources in the territory of TL

“2. The conditions for the exploitation of the natural resources

referred above should lead to the establishment of mandatory

financial reserves, in accordance with the law.” - Petroleum Fund

“3. The exploitation of natural resources shall preserve the ecological

balance and prevent destruction of ecosystems.” - Environmental concerns

LEGAL FRAMEWORK

Page 5: 2014-07-08- Oil & Gas in TL

International Treaties

• Timor Sea Treaty - Resolution of the National Parliament 2/2003, of 1 April 2003

• Treaty on Certain Maritime Arrangements in the Timor

Sea Treaty (CMATS) - Resolution of the National Parliament 4/2007, of 8 March 2007

• Unitization of the Sunrise and Troubadour Fields - Resolution of the National Parliament 5/2007, of 8 March 2007

LEGAL FRAMEWORK

Page 6: 2014-07-08- Oil & Gas in TL

LEGAL FRAMEWORK

Page 7: 2014-07-08- Oil & Gas in TL

LEGAL FRAMEWORK

Petroleum in

Timor-Leste

Jurisdiction/

geographical scope

TLEA JPDA

- CRDTL, Article 4

- Law 7/2002, of

20 September

2002 (Maritime

Boundaries)

- Timor Sea Treaty,

Article 3 & Annex A

Page 8: 2014-07-08- Oil & Gas in TL

LEGAL FRAMEWORK

Petroleum in

Timor-Leste

Institutional aspects

TLEA JPDA

Ministry of

Petroleum

and Mineral

Resources

TIMOR

GAP –

Timor Gás

& Petróleo,

E.P

Autoridade

Nacional do

Petróleo

Designated

Authority Joint

Commission

Ministerial

Council

Page 9: 2014-07-08- Oil & Gas in TL

LEGAL FRAMEWORK

TIMOR-LESTE

EXCLUSIVE AREA

(TLEA)

Page 10: 2014-07-08- Oil & Gas in TL

Main applicable laws

• Constitution of the Democratic Republic of Timor-Leste

• Petroleum Activities Law

• Public Tenders for Petroleum Contracts

• Autoridade Nacional do Petróleo (ANP)

• Timor Gap – Timor Gás & Petróleo, E.P.

• Tax and Duties “Act”

• Petroleum Fund Law

• Government Framework Law (MPMR)

LEGAL FRAMEWORK

Page 11: 2014-07-08- Oil & Gas in TL

Other main applicable instruments

• Model Production Sharing Contract

• TLEA Regulations (in discussion)

LEGAL FRAMEWORK

Page 12: 2014-07-08- Oil & Gas in TL

Petroleum Activities Law

• Main goal governs the exploration, development and

production of hydrocarbon resources

• Geographical scope TLEA (onshore & offshore)

• Material scope petroleum operations

• Title to petroleum

• Main types of authorizations

- Prospecting

- Petroleum Contracts Production Sharing Contracts

- Seepage Use

LEGAL FRAMEWORK

Page 13: 2014-07-08- Oil & Gas in TL

Petroleum Activities Law (cont.)

• Prior approval of the Ministry

- Joint operating agreement

- Lifting arrangement

- Any other agreement related to petroleum operations, as well as

any amendments thereto

LEGAL FRAMEWORK

Page 14: 2014-07-08- Oil & Gas in TL

Petroleum Contracts

• Model PSC

• Entered into between the ANP and companies/ entities

• In order to be eligible as a party to a Petroleum Contract

an entity must

- Have or have access to financial and technical capacity to

carry out Petroleum Operations

- Not have a record of non-compliance with principles of good

corporate citizenship

- Be a limited liability corporation or an entity with limited liability

LEGAL FRAMEWORK

Page 15: 2014-07-08- Oil & Gas in TL

Petroleum Contracts (cont.)

• Scope, term and rights

• Minimum work obligations, work programs and guarantees

• Abandonment / decommissioning

• Declaration of commercial discovery

• Cost recovery and production sharing

• Environmental protection

• Obligation to supply the domestic market and emergency situations

• Local content

LEGAL FRAMEWORK

Page 16: 2014-07-08- Oil & Gas in TL

Petroleum Contracts (cont.)

• Production sharing - 5% Ministry

- 95% Cost recovery cap

- Remaining (Profit petroleum) - 40% to the Ministry

- 60% to the Contractor

LEGAL FRAMEWORK

100 Total oil produced

- 5% Royalty – to the Ministry

95 Total

- 50 Recoverable costs of the Contractor

Profit Petroleum Sharing 40% of

45 = 18

60% of

45 = 27

(to the Ministry) (to the Contractor)

23 (5 + 18) 77 (50 + 27)

Page 17: 2014-07-08- Oil & Gas in TL

Bidding rounds & direct negotiations

• General Rule

− Public tender

• Exception

− Direct negotiation admissible in the following situations:

• Access authorizations; or

• In cases of justified public interest

LEGAL FRAMEWORK

Page 18: 2014-07-08- Oil & Gas in TL

Taxation of petroleum operations

• Personal scope − Contractor

− Subcontractor

− Any person that receives an amount as consideration for the

provision of goods and services to the Contractor or the

Subcontractor

• Types − Petroleum Income Tax

− Supplemental Petroleum Tax

LEGAL FRAMEWORK

Page 19: 2014-07-08- Oil & Gas in TL

Petroleum Income Tax

• Rate - 30%

• Ring fencing in marginal fields

• Profits - Profits deriving from the selling or disposal of its share of

petroleum

- Any other revenue • All funds received by the Contractor, in addition to the income deriving

from the selling or disposal of its share of petroleum

• Expenses - Exploration expenses

- Development expenses

- Production expenses

LEGAL FRAMEWORK

Page 20: 2014-07-08- Oil & Gas in TL

Supplemental Petroleum Tax

• Supplemental Petroleum Tax is due whenever the income

of a company exceeds a certain amount

LEGAL FRAMEWORK

Page 21: 2014-07-08- Oil & Gas in TL

LEGAL FRAMEWORK

Joint Petroleum

Development Area

(JPDA)

Page 22: 2014-07-08- Oil & Gas in TL

Legal Framework

• Timor Sea Treaty

• (Treaty between the Government of Timor-Leste and

the Government of Australia on Certain Maritime

Arrangements in the Timor Sea)

• Unitization Agreement for the Sunrise and Troubadour

Fields between the Government of Australia and the

Government of Timor-Leste

LEGAL FRAMEWORK

Page 23: 2014-07-08- Oil & Gas in TL

Legal Framework (cont.)

• Petroleum Mining Code

• Interim Administrative Guidelines for the JPDA

• Guidelines for Applications for PSCs and Criteria for

Assessment of Applications

LEGAL FRAMEWORK

Page 24: 2014-07-08- Oil & Gas in TL

Production sharing • 5% Designated Authority (90% - 10%)

• 95% Cost recovery cap

• Remaining - 40% to the Designated Authority

- 60% to the Contractor

Example:

LEGAL FRAMEWORK

100 Total of crude oil produced

- 5% Royalty – to the Designated Authority

95 Total

- 50 Recoverable cost of the Contractor

40% of

45 = 18

60% of

45 = 27

(to the Designated Authority) (to the Contractor)

23 (5 + 18) 77 (50 + 27)

Page 25: 2014-07-08- Oil & Gas in TL

Challenges and opportunities

Page 26: 2014-07-08- Oil & Gas in TL

Challenges:

• Logistics

• Qualified personnel / employment of nationals

• Sourcing of equipment

• Public perception / NGOs

• Civil law legal system

• Land issues in onshore operations

CHALLENGES AND OPPORTUNITIES

Page 27: 2014-07-08- Oil & Gas in TL

Opportunities:

• Suai Supply Base

• Young population /Human Capital Development Fund

• Strong regional oil & gas market

• Institutional framework

− Government support

− Professional and well reputed regulator

− Active and business-oriented NOC

− EITI

CHALLENGES AND OPPORTUNITIES

Page 28: 2014-07-08- Oil & Gas in TL

Opportunities:

• Business-friendly regulation

• Presence of qualified legal services providers

• Numerous Business opportunities

− Onshore

− Local partnerships

− Services sector

− Training

− Downstream

CHALLENGES AND OPPORTUNITIES

Page 29: 2014-07-08- Oil & Gas in TL

Thank you [email protected]