Petroleum royalty agreements are well understood and widely used in several jurisdictions worldwide, and are increasingly being used in many new jurisdictions as a tool for petroleum project development, financing and divestment. However, they are not always drafted with the necessary rigour, and deficiencies are commonplace.
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.
Tabela de Conteúdo
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 109
Notes 109
Index 113
About the author 117
About Globe Law and Business 119
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