Uruguay open round presents unique offshore frontier opportunity

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Open Uruguay round Given the renewed interest of the upstream industry to explore in the frontier areas of the Southern Atlantic margin, ANCAP and MIEM understood it was convenient to review the system for awarding areas for the exploration of hydrocarbons, in order to make it more competitive with regards to the fiscal regimes offered in other frontier-exploration destinations. Therefore, by Decree 111/019, a new regime for the selection of oil operating companies for the exploration and exploitation of hydrocarbons was established: the Open Uruguay Round.

The Open Uruguay Round system accomplishes the most valued factors by oil companies at the moment of participating in a bidding round: transparency in the process of decision making, a clear and predictable schedule, and making available a significant amount of data to the exploration companies.

In this continuously open process, companies can qualify and submit offers at any time. However, the system does not imply a direct negotiation; instead, it works as two bidding rounds per year, with opening of offers at two instances per year.

Oil companies’ qualification is based on their technical, economic, and legal background. With the purpose of promoting the participation of independent oil companies focused on exploratory operations, the terms include the possibility of qualification exclusively for the exploration period, with or without exploratory well, as well as for the exploration and exploitation periods, with technical and economic requirements significantly differentiated in each case.

Similarly as in the first three bidding rounds, in case there are two or more offers for the same area on the same instance, the offers would be compared based on three biddable criteria: the committed work program for the first exploratory period, the percentage of increase of profit oil for the Uruguayan state, and the maximum percentage of association of ANCAP, and the area would be awarded to the highest score offer. In order to mitigate the exploratory risk, ANCAP is offering large areas offshore, from shallow (50 m) to ultra-deepwaters (more than 4,000 m bathymetry), with an average size of 14,360 sq km (5,544 sq mi) .

The contract model approved in the Open Uruguay Round regime is similar to typical production-sharing contracts (PSC) widely used in the industry, for which the contractor assumes all risks, costs, and responsibilities of the activity. No royalties or bonuses of any kind are applied. The exploration period, which has a term of up to 11 years, is divided in three exploration phases and companies could have an area for six years before committing to drill exploratory wells. The term of the complete contract including the exploitation period is 30 years, which could be extended for 10 additional years if requested by the contractor for justified reasons and approved by the executive branch.

Regarding the contract economy, the production income is divided in three portions: cost oil, profit oil for the contractor, and profit oil for the Uruguayan state. The contractor is allowed to recover the cost oil (operating and capital costs) from gross income before sharing the production profit. The cost recovery is limited to 60% of gross income in case of oil production and 80% in case of natural gas production. For any given quarter, if cost oil is more than the allowed limit, the remaining unrecovered amount is carried forward and recovered in the following quarter until it is fully recovered.

The profit oil is the portion of production remaining after the cost oil has been deducted. It is split by the state and the contractor on the basis of a sliding scale by which the state’s share increases as the relationship between gross income and total costs increases.

ANCAP has a back in option, which means that, after the commerciality of a discovery is declared, it has the right to take up a working interest in the project development. ANCAP’s participation ranges from 20% up to a maximum that is also biddable and used for comparison of offers, as mentioned before. After ANCAP has associated to the IOC, it would have the same role as any partner in a typical joint operating agreement.

Therefore, the Open Uruguay Round Contract has been designed in such a way that the oil company controls the risk and reward terms of the exploration equation, because all terms that define it are part of the offer: the economy of the contract, strongly influenced by the profit oil sharing and ANCAP’s association percentage, and the committed exploratory program for the first exploration phase, are both offered by the oil company in the bid.

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Source link : https://www.offshore-mag.com/geosciences/article/14069070/uruguay-open-round-presents-unique-offshore-frontier-opportunity Author : Publish date : 2019-10-21 03:00:00 Copyright for syndicated content belongs to the linked Source .