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58th Annual Meeting - San FranciscoJune 13-16, 2012

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International Negotiations

“In the beginning and Beyond”

W.B. PhillipsUS Exploration Land ManagerHunt Oil Company

John BlairAssistant General CounselHunt Oil Company

Hey Bob,

I got a great deal on some acreage that Petrobras is going to let expire.

What do you know about international farmouts?

Going To Rio

He doesn’t know anything either!

Shoot!, he doesn’t know anything!

How to Start

• First, take a deep breath

• Do as much homework as possible and find out as much as you can about:– The deal– Your partners– The host country– Is your passport current and will you need a VISA

• Find an expert(s) you and one your company can trust– Get one here in the US and one in the country where the deal is

• Use your domestic experiences, but be careful about comparisons

Do’s and Don'ts

• Do:– Do your homework first– Recognize others national pride– Think outside the box– Join the AIPN

• Don’t:– Think you are smarter (than they are)– Think you know it all (you don’t)– Try to buy goodwill (there may be laws against it)

General Comparison’s

Domestic International

Laws: Common law Common lawCivil law Civil lawCase law Case lawLegislative LegislativeTax law Tax law

Mineral ownership: FeeStateFederal Federal

Note: the vast majority of foreign mineral ownership is held by the national governments

General Comparison’sDomestic International

Type ownership: Fee yes yes (varies)State yes (DNR,GLO, etc.) yesFederal yes (BLM, BOEM) yes

(old MMS)Type of Mineral Lease granted:

Fee oil & gas lease Production sharing Agmt.

State oil & gas lease License orFederal oil & gas lease concession,

(you pay all tax and royalty)

risk service contract and hybrid of all the above

Government participation: no often and thru state owned company

General Comparison’s

Domestic International

Signing authority: company officer, AIF Head of State, Oil Minister

Types of contracts (between WI owners):AAPL JOA, AIPN JOAfarmouts farmoutsJV’s JV’sHandshakes MOU’s, MOA’sHybrid Hybrid

see next page

ORRI and Net Profits recognized:Yes Yes, no, maybe,

don’t understand

Types of Contracts Specified by Legislation

• License– Similar to oil and gas lease. – Licensee receives all sales , LESS royalty and taxes

• Production Sharing Agreement– Contractor received negotiated % of production (less costs) and negotiated %

of balance of profits

• Risk Service Contract– Contractor negotiates % of production less costs compensated for risks

• Service Contract– Contractor receives negotiated payment regardless of success

Primer on Host Government Contracts (HGC)

How do you become competitive?

Three basic forms of HGC• Service contract - Example Iraq• Concession or License– Tax and Royalty• Production Sharing Agreement (PSA) – cost oil/share oil

HGC is the law• National interests• Subsequent amendments; political risks

Title to oil and gas under a Concession/PSA• Understand what is covered• Title passes at point of delivery• Money flow

Compare Featrures of Concession/PSA to Domestic Oil and Gas Leases

Term• Fixed periods – no habendum clauses• Exploration phases – off ramps• Development period fixed term for commercial production (20-

25 years)

Work Commitments• Competitive just like domestic bonus and royalty• Each phase includes a commitment to do the minimum required

(work v. $$); carry forward rights; may require acreage relinquishments

• Competing interests of HG and Oil Company• Data collection• Commercial production• Limited capital• Relinquishment issues

Compare Featrures of Concession/PSA to Domestic Oil and Gas Leases

• HG as Partner• Carried interests to commercial production – may be option

to elect; 5% to 20 %• Operating committee

• Chaired by representative of HG as JOA partner; sovereign issues

• Training• Significant issue to train and employ local labor• Key control positions required

• Arbitration• How to resolve disagreements

Comparative Fiscal Terms by Country

• Fracing bans

• Things you normally don’t think of

• Political risks

• Summary

Odd’s and In’s

Fracing Ban’s (it’s not only a US problem)

• France New York

• New South Wales

• West Virginia

• Will my credit card work?– Will I need cash and if so in what currency?

• Will my cellphone or iPad work? (Do you want to take it?)

• Does my company have the right insurance?

• Will I need a VISA?

• Should I drive?– Answer – NO, NO , NO!

• Can I take pictures?

Things you normally don’t think of

• Labors Laws

• Physical access

• Boundary disputes

• Nationalization (Venezuela)

• Local Counsel availability

• Foreign Corrupt Practices Act implications

• Signatures often require “board” resolutions and what’s an “apostele”?

Things you normally don’t think of

Things you normally don’t think of

• What is the weather like?

• Do I know where I am going?

• Where am I staying?

• Will my plug in’s work?

• What can I take with me? (and what can I bring back?)

Political Risk

Political Risk

• Political Risk

• Where is the closest US Embassy?– Do I have their contact information?

Summary

• Find out as much as possible about the deal and where it is

• Review all the facts with your expert, and then with your management

• Don’t let the romance of the deal get in the way of good business judgment

• If you go forward maintain an acute situational awareness of all aspects of the opportunity and where you physically are

• Have fun and learn as much as you can!

Join AIPN

Political Risk Run Amuck• Do I need personal security?

Man, I am glad I attended the AAPL Education seminar

on International Trades!