From a legal point of view, there are a number of questions about standard concession agreements. The first point concerns the fact that the name of the Egyptian concession contract is not compatible with the legal nature of the agreement itself. There are three main types of oil exploration and production agreements in the world. The first type is a production-sharing agreement in which the state retains ownership of all natural resources, in the case of Egypt oil and natural gas. The contractor must recover all expenses and expenses after the completion of commercial production. Production is distributed according to the percentages set out in the agreement between the state and the contractor. Mining rights are retained by the state or granted to its national corporation, while the contractor has no mineral rights. The most important issue is taxation and royalties. Tangential, it should be noted that, from a legal point of view, royalties are not a form of tax, but a sum that must be paid to the state for the exploitation and production of mineral resources. The national company supports and pays royalties and income tax on its production share. The second form of the agreement is the concession agreement.
In such an agreement, the contractor has the right to recover all oil below the surface or from production. This form of agreement does not use cost recovery mechanisms and the contractor is required to pay applicable royalties and income tax as well as other taxes levied by the state. The state`s share of such a system consists of royalties and taxes paid by the contractor. The third type of agreement is the service contract, also known as a risk service contract, in which the contractor must provide exploration and production services for a fixed fee to be paid in cash without interest in oil. In some countries, awardees are paid in quantities of oil produced corresponding to the awarding costs. LONDON, April 13 — Egypt has extended the duration of its concession contract with the group that develops the Meleiha block in the western desert until 2024. The group expects to produce 840,000 tonnes of oil in 2007, up from 800,000 tonnes in 2006. Another problem with the current agreement model is the need to obtain government approval in many phases of the project. After the award of a territory and the signing of the corresponding concession contract, the contractor is often prohibited from actively working in the concession field because of the required authorization. The result is delays in the project.
In order to avoid the penalties in the concession contract, the contractor may apply for a case of force majeure. To avoid such problems, the Ministry of Petroleum must obtain all necessary government approvals for each territory and announce these elements during the Bid Round process. Total premiums for these agreements were $285.25 million and the minimal financial commitments incurred during the exploration phases of these agreements amount to approximately $4.7 billion for the acquisition of 2D and 3D seismics, geological and geophysical studies and the drilling of 178 exploratory drilling. Egypt`s oil law stipulates that any concession must be implemented through a specific statute adopted by the People`s Assembly of the Arab Republic of Egypt authorizing the oil minister to carry out the concession. The provisions of the concession prevail over contrary legislation. In accordance with the enabling regulations, the government grants the contractor the right to explore and develop a specific area for a first exploration period, with an extension period of up to two times, at the contractor`s choice.