These three types of agreements are explained in the following sections. Under concession agreements (or licenses), the selected refining company or consortium conducts exploration activities. The company takes over all of the production, when it is extracted, in return for the payment of a royalty to the host state. Royalties could be in cash or in kind. It could also take the form of a income tax or other types of fees and contributions, possibly including an additional income tax, if it exceeds a pre-defined threshold. This type of contract is called a licence and generally gives the licensee the exclusive right to explore and value oil, own and market production, and own the corresponding equipment and facilities. The new modernized concession can be distinguished from the old traditional concession by the following features, such as the smallest concession area; The existence of a waiver provision; much shorter duration The possibility of an extension in the event of the launch of commercial oil production; strengthening state control and the possibility of participating in the oil investment project; significant financial improvements in the form of equal profit sharing, rents, new licensing fees, bonus systems and income tax. The joint venture (“JV”) generally involves a commercial agreement between two or more parties who are willing to pursue a joint venture in a form to be clarified. A joint venture can be compared to a modern marriage that has a time of bale and requires parties that they know and understand each other`s objectives, interests and business methods. The low success rate of modern marriage also applies to joint ventures in companies.
Given the permanent nature of the joint enterprise structure, it is not surprising that joint ventures are less often used as an underlying agreement between an oil company and a host government. Nigeria was an exception: the national oil company preferred this format until it could no longer fulfill its share of the financial commitments of the joint venture. Today, in Nigeria, the new agreements are mainly EPI. Since a joint venture requires parties to jointly fulfill their business objectives by not resolving important issues before entering a joint venture, the parties merely postpone a possible disagreement or impasse, particularly where a joint venture is a 50-50 agreement. Longer-term negotiations, which will take place over a broad period of time, are necessary to ensure that all issues are dealt with in a thoughtful manner. A government can make a concession to a prospector. The concession contract defines certain things. For example, exploration conditions and production agreement rules if successful.
A long time ago, a concession meant that the prospector would own the resources on the territory of the concession (the British North Sea) and for a period of sometimes up to 75 years. Over the years, concessions have been less frequent, which has made way for production-sharing agreements, etc. The government wants to generate revenue from the start of exploration. Payments to the government sometimes include a bonus when a contract is signed.