Oil & Gas

From exploration to distribution

Week 3 V18 Conclusion Exploration & Production
Jean-Claude Heidmann

W3V18 - E&P conclusion p. 1

IFPEN - IFP School 2015 / TOTAL SA 2015 / IFP Training 2015

E&P Game Rules

All the activities, presented in the previous sessions, are performed all around the world,
within very strict frameworks, varying of course, according to each country's regulations.
Each step which has been presented, such as :
the attribution of mining rights
the definition of the work programs
development decisions,
the definition of the production scheme,
extension of licenses and, of course,
abandonment decisions and the abandonment process are authorized, defined and
tightly controlled by each country's regulations and laws.
What are the main ones?
One of the most common ways for any oil company to obtain mining rights and
exploration/production acreage is through bidding rounds.
These are organized by each countrys authorities, based on the local Hydrocarbon or
Mining Law.

The two most common contracts today are the Concessions and the so-called Production
Sharing Contract or PSC.
They define, for example, the terms and conditions of the share of production between
partners.
They also specifies the split of cost/investments and the related revenues between the joint
venture partners and the country.
On a worldwide basis, 50 to 90% of the revenue is for the host country?
These contracts were negotiated a long time before the start of production, even sometimes
before any discovery.

W3V18 - E&P conclusion p. 2

IFPEN - IFP School 2015 / TOTAL SA 2015 / IFP Training 2015

For each asset - which is a block or a permit - several partners create what we call a Joint
Venture - or JV- with only one company holding the operatorship.
Why? Exploration is a risky business.
Therefore it is very rare that one company holds 100% of one asset and for one main reason:
risk sharing.
These risks are related to: exploration risk, assets uncertainties, financial exposure, access to
technologies, portfolio management of E&P assets, etc
The operator and partners could be either a NOC, IOC or any other E&P company such as the
ones presented during the previous course.
The Joint Operating Agreement called JOA - is a typical contract, defining rules between
partners, and aims to manage the acreage within the Joint venture. It defines the rules of the
game for the JV partners.

E&P Actors
In countries where a National Oil Company exists, for example Saudi Aramco, Petrobras,
Statoil etc, this NOC acts on behalf of the government in the joint ventures.
The group of International Oil Companies or IOC includes big integrated companies called
Majors - such as Exxon, Shell, BP, Chevron or Total - but includes also a whole range of
sizes from large Independants to very small individual companies. Their roles vary
depending on their business models.
In addition specialized contractors and service companies contribute to, and work with,
the Joint venture under service or technical contracts.

E&P Future challenges

To conclude, It is important to mention a few challenges that the E&P industry will face in
the coming years:
W3V18 - E&P conclusion p. 3
IFPEN - IFP School 2015 / TOTAL SA 2015 / IFP Training 2015

The first challenge: growing competition between the International Oil Companies, the
National Oil Companies and the contractors or service suppliers in order to secure access
to acreage and assets.
The second type of challenge, is related to the technology and research effort that will be
required to develop more and more complex fields in more and more difficult environments.
And lastly, due to this complexity, E&P activities are more and more capital intensive all
along the cycle.
The next step of the oil and gas chain is the transformation of hydrocarbons. This is the
work of the refining industry and you will learn all about that during the next course.

W3V18 - E&P conclusion p. 4

IFPEN - IFP School 2015 / TOTAL SA 2015 / IFP Training 2015