Drafting and Negotiating Petroleum Royalty Agreements
Published: 2021
Pages: 119
eBook: 9781787428003
This Special Report provides an overview of the key issues relating to petroleum royalty agreements including key forms of royalty agreement (including gross overriding royalties, net profit interests, cash and in-kind royalties).
This Special Report provides an overview of the key issues relating to petroleum royalty agreements (with drafting examples), including:
•key forms of royalty agreement (including gross overriding royalties, net profit interests, cash and in-kind royalties);
•an explanation of the economic underpinning of royalty agreements;
•the content and effect of key royalty agreement provisions; and
•additional provisions which can be found in royalty agreements.
It will be an invaluable guide to legal, commercial and financial professionals engaged in petroleum project financing, development and divestment.
Table of Contents
| Cover | Cover | |
|---|---|---|
| Title Page | 1 | |
| Copyright Page | 2 | |
| Table of contents | 3 | |
| Introduction | 7 | |
| Part A: Introduction to royalty interests | 9 | |
| A1. The essential elements of a royalty interest | 9 | |
| A2. The characterisation of a royalty interest | 10 | |
| A3. How a royalty interest comes into existence | 12 | |
| A3.1 A royalty interest as a vehicle to facilitate a financial investment | 12 | |
| A3.2 A royalty interest as part of the sale consideration on a transfer of interests | 15 | |
| A3.3 The US model for petroleum exploitation | 15 | |
| A4. The concessionary interests | 17 | |
| A5. The produced petroleum | 19 | |
| A6. The subject interest | 21 | |
| A7. The royalty rate | 23 | |
| A8. The economic balance of the royalty interest | 24 | |
| A9. The form of execution of a royalty agreement | 27 | |
| A10. Mineral interest royalties | 28 | |
| Part B: The economic underpinning of royalty interests | 29 | |
| B1. The royalty in kind | 30 | |
| B2. The cash royalty | 31 | |
| B3. The gross overriding royalty | 36 | |
| B4. The net profit interest | 36 | |
| B5. Upstream petroleum granting instrument royalties | 43 | |
| Part C: Basic elements of a royalty agreement | 45 | |
| C1. Ambit | 45 | |
| C2. Audit and inspection | 47 | |
| C3. Boilerplate provisions | 50 | |
| C3.1 Confidentiality and announcements | 50 | |
| C3.2 Conflicts management | 50 | |
| C3.3 Entire agreement | 51 | |
| C4. Duration | 51 | |
| C4.1 Commencement | 51 | |
| C4.2 Term | 52 | |
| C4.3 Termination | 54 | |
| C5. Information provision | 55 | |
| C6. Governing law and dispute resolution | 57 | |
| C6.1 Governing law | 57 | |
| C6.2 Dispute resolution | 58 | |
| C6.3 Custom and practice | 58 | |
| C7. Performance, breach and liability | 59 | |
| C8. Production covenants | 61 | |
| C9. Production indemnities | 65 | |
| C10. Relationship with the JOA | 68 | |
| C11. Statements and payment mechanics | 69 | |
| C12. Taxation allocation | 71 | |
| C12.1 The royalty holder’s liability | 71 | |
| C12.2 The producer’s liability | 71 | |
| C12.3 Taxation allocation | 72 | |
| C13. Transfers | 73 | |
| C13.1 Transfers by the producer | 73 | |
| C13.2 Transfers by the royalty holder | 77 | |
| C13.3 General | 77 | |
| C14. Warranties | 78 | |
| Part D: Additional provisions in a royalty agreement | 81 | |
| D1. Collateral support | 81 | |
| D2. Conversion rights | 84 | |
| D3. Expropriation protection | 86 | |
| D4. Fiduciary duties | 87 | |
| D5. Force majeure | 88 | |
| D6. Insurance | 90 | |
| D7. Management of competing interests | 90 | |
| D8. Pooling and unitisation | 91 | |
| D9. Redemption rights | 93 | |
| D10. Registration | 95 | |
| D11. Replacement upstream petroleum granting instruments | 96 | |
| D12. Suspension rights | 97 | |
| Part E: Related arrangements | 101 | |
| E1. Royalty-repaid carry costs | 101 | |
| E2. Payout arrangements | 102 | |
| E3. Volumetric production payments | 105 | |
| E4 Illustrative agreement participation | 106 | |
| Notes | 109 | |
| Index | 113 | |
| About the author | 117 | |
| About Globe Law and Business | 119 |
Those who are involved in the energy sector in any way, shape or form will be abundantly aware of the current global focus on the need to reduce carbon emissions to mitigate the effects of climate change. They are also likely to be aware that fossil fuels are projected to have a role to play in the global energy system in at least the short to medium term and that continuing and sustainable exploration and production of oil and gas is needed to facilitate this. The latest book by Peter Roberts, Drafting and Negotiating Petroleum Royalty Agreements, is therefore a timely examination of one of the key project contracts that underpin such exploration and production.
Franicevic Jared
Peter Roberts
Principal, Cross Keys Energy
[email protected]
https://www.linkedin.com/in/peter-roberts-27269963/
Peter Roberts is the principal of Cross Keys Energy, an independent energy consultancy. He is an oil and gas projects lawyer with 30 years of legal and commercial experience working for oil and gas companies on acquiring, structuring, developing and financing upstream, midstream and downstream petroleum projects, and also for governments on oil and gas sector regulatory matters.
He was worked extensively in Asia, Africa, Central and Eastern Europe and South America, and has previously worked in-house and as a partner in several international law firms. He also appears as an expert witness in energy sector disputes. He is the author of several leading energy sector textbooks; is an honorary lecturer at Dundee University and a visiting professor of law at Austral University in Buenos Aires; and is the editor of the Association of International Petroleum Negotiators’ Journal of World Energy Law and Business.