Interests of parties protected and Investor risk / reward balanced
through improved terms;
Cost recovery period reduced.
Exemption from petroleum related revenue/profit taxes and
import/export duties (including sub-contractors).
Free disposition of contractor share of production.
Free transfer of funding and revenue into/out of the country.
Improve development economics by ensuring any spare capacity in
existing infrastructure is made available at reasonable cost,
Simplify application processes, make data for open blocks more
available and assist with field trips etc.
restrictions on Contractor performing Petroleum Operations
(International Petroleum Industry standards) apply.
becomes a law, with key features;
State owns its Petroleum Resources and Contractor has title to its
Cost Oil and share in Production Sharing Oil.
Contractor is granted exclusive rights to conduct Petroleum
Operations in the Agreement Area by the Ministry (MOM).
Contractor executes Petroleum Operations at its sole risk and
Management vested in a Joint Management Committee during
exploitation phase (but mainly the Contractorís responsibility
during the exploration phase).
Sliding scale royalty, signature and production bonuses.
- Contractor recovers qualifying costs and shares profit oil with
Ministry on a sliding scale.
Contractor share of production is net of taxes.
Production Sharing Agreements;
agreement is the legal frame of reference defining the agreed-upon
terms and conditions between both parties─ the MOM and contractor. Such agreement is made through
direct negotiation between contractual parties. Both parties
should be completely convinced of the agreementís content, since
it, the agreement, is an instrument created by both parties on the
basis of their consent. No party has the right to impose any thing
on the other party. In addition, a contracting oil company is
given sufficient time is to decide whether to enter into agreement
or not. This is through first signing a memo of understanding
valid for a period of two to three months after both parties have
already defined the most significant economic terms and conditions
governing oil operations in the area chosen by the contractor.
During such a period, both parties start negotiating the sharing
agreement. After signing the agreement, they start following the
endorsement procedures of the agreement.
of an agreement between the parties is by the issuance of a
special law to that effect in accordance with effective
constitutional procedures in the
Yemen. Such a law should be approved by concerned bodies (the
Council of Ministers, the Parliament and then the President of the
Republic). Legally speaking, such an agreement constitutes an
operative legal guarantee whose provisions dominate all other
regulations and legislations in force at the time of drafting it
or those violating its provisions. This legal value of the
agreement is so because the agreement is a special law issued on
the basis of both partiesí consent. That is, the will of both
parties was the basis for drafting such an oil contract (the
agreement, which paves the way for both parties to appropriately
put it into force later on.
production sharing agreement (PSA), described above, is legally
the most persuasive and suitable instrument. The flexibility of
its provisions has encouraged international oil companies to
venture and invest millions of dollars in investment projects in
Yemen. The reason is that unlike any other place, in Yemen,
investors have great expectations for discovering oil of
commercial significance under such flexible legislations instead
of working somewhere else under effective legislations whose
provisions are usually unclear and unknown to the investors or
most of the time new investment decisions are taken as it may have
happened in a number of countries which had surpassed us in this
What has been jotted down were some of the features governing oil
exploration and production agreements in Yemen; other features are
those of the international oil industry standards, which are
included in Yemenís agreements. More importantly are the natural
characteristics of Yemen, which suit and are a source for safe
investment; these are the magnificent climate and the hospitality
and generosity of the Yemeni people. Yemenis tend to treat their
guests whether a visitor, investor or a resident in a very elegant
and civilized manner.