Timor Leste

Portuguese and English, Portuguese text prevails where a conflict between English and Portuguese versions arises.

Map of contract area

Petroleum

Ministry of Petroleum and Mineral Resources

The development and production period shall be 20 years. (In addition to a possible 9 years for exploration.)

Model production sharing contract

To be considered for qualification as an operator, the following information must be submitted to the government: details of the environmental management system of the applicant.

The company shall carry on petroleum operations, and shall procure that they are carried on to: protect the environment and potentially affected local communities based on sustainable development and ensure that petroleum operations result in minimum ecological damage or destruction or detrimental social impact. The company shall control the flow and prevent the waste or escape of petroleum, water or any product used in or derived by processing petroleum. The company shall also prevent the escape of any mixture of water or drilling fluid with petroleum and prevent damage to petroleum-bearing strata in or outside the contract area. The company shall clean up pollution resulting from petroleum operations to the satisfaction of the government and other relevant authorities, and meet the costs of so doing to the extent done by anyone else (including the government). The obligation to prevent the cause of pollution by the facilities and to clean up the pollution are continuing obligations and survive the expiration or termination of the contract.

The company shall carry on petroleum operations, and shall keep separate (aa) each reservoir discovered in the contract area; and (bb) such of the sources of water discovered in the contract area as the government directs.

Each company shall have all of its tax financial statements and tax returns for each calendar year audited in accordance with international auditing standards by an independent auditor appointed by the respective company and approved to carry out such audits by the appropriate authority of each of Timor-Leste. The reasonable cost of retaining such auditor shall be borne by the respective company and shall be a recoverable cost. The report of such auditor shall be submitted to the government within thirty days after completion of such audit. The government has the right to inspect and audit all of the company's books, accounts and records relating to petroleum operations under this contract and activities under its authorization for the purpose of verifying the company's compliance with the terms and conditions of this contract. Such books, accounts and records shall be made available by the company in Timor-Leste for inspection and audit by representatives of the government of Timor-Leste including, at the company’s cost, independent auditors that may be employed by them. The government has the right in connection with such audit, to visit and inspect at reasonable times, all sites, plants, facilities, warehouses and offices of the company directly or indirectly serving the petroleum operations and to question personnel associated with those petroleum operations. The government may request in accordance with the Petroleum Act that any company shall arrange for, and pay for, an independent audit of its activities under its authorization.

This contract contemplates the payment of taxes in that it states they are an ineligible cost.

The government may require the company to supply crude oil and natural gas to the Timor-Leste domestic market in accordance with the Act.

The remaining available petroleum after royalties and cost recovery including any portion of cost recovery crude oil or cost recovery natural gas not required to cover costs shall be allocated between the government and company as follows: Company's share of profit petroleum shall be the remaining portion after deducting the government’s share. The government’s share of profit crude oil or profit natural gas for a calendar month from the contract area shall be determined separately for crude oil and natural gas by reference to the applicable price class in the relevant table(s) below. Government’s share of profit crude oil [X]%. The government's share of profit crude oil shall be determined each calendar month based on each of the percentages in the table below. Production tier A, B, C, D, E (Crude oil price class) Up to 10,000 B/D: 35, 40, 45, 50, 50 In excess 10,000 B/D and up to 25,000 B/D: 35, 40, 45, 50, 50 In excess 25,000 B/D and up to 50,000 B/D: 40, 45, 50, 55, 55 In excess 50,000 B/D and up to 75,000 B/D: 45, 50, 55, 60, 60 In excess 75,000 B/D: 50, 55, 60, 65, 65 B/D = barrel of oil per day Crude Oil Price Class Where: A refers to the government’s share for a crude oil price less than or equal to US$ 40 per barrel. B refers to the government’s share for a crude oil price greater than US$ 40 per barrel but less than or equal to US$ 60 per barrel. C refers to the government’s share for a crude oil price greater than US$ 60 per barrel but less than or equal to US$ 80 per barrel. D refers to the government’s share for a crude oil price greater than US$ 80 per barrel but less than or equal to US$ 100 per barrel. E refers to the government’s share for a crude oil price greater than US$ 100 per barrel. The government's share of profit natural gas shall be determined each calendar month based on each of the percentages in the table below. Production tier A, B, C, D, E (Crude oil price class) Up to 60 million cubic feet per day (mmcfd): 35, 40, 45, 50, 50 In excess 60 mmcfd and up to 150 mmcfd: 35, 40, 45, 50, 50 In excess 150 mmcfd and up to 300 mmcfd: 40, 45, 50, 55, 55 In excess 300 mmcfd and up to 500 mmcfd: 45, 50, 55, 60, 60 In excess 500 mmcfd: 50, 55, 60, 65, 65. Where: Price class A refers to government’s share for a natural gas price less than or equal to US$ 4 per mmcf. Price class B refers to government’s share for a natural gas price greater than US$ 4 per mmcf but less than or equal to US$ 6 per mmcf. Price class C refers to government’s share for a natural gas price greater than US$ 6 per mmcf but less than or equal to US$ 8 per mmcf. Price class D refers to government’s share for a natural gas price greater than US$ 8 per mmcf but less than or equal to US$ 10 per mmcf. Price class E refers to the government’s share for a natural gas price greater than US$ 10 per mmcf. Non-associated gas projects shall benefit from a discount of 20% on the amount of the supplemental petroleum tax as specified in the Taxes and Duties Act.

A transaction meets the arm’s length standard if the results of the transaction are consistent with the results that would have been realized if the third party had engaged in the same transaction under the same or identical circumstances. Except as otherwise agreed in writing between the government and the company, all transactions giving rise to revenues, costs or expenses which will be credited or charged to the books, accounts, records and reports prepared, maintained or submitted hereunder shall be conducted at arm's length or on such a basis as will assure that all such revenues will not be lower and costs or expenses will not be higher than the international market price for goods and services of similar quality supplied on similar terms prevailing in South and South East Asia at the times such goods or services were contracted by the company for transactions conducted at arm's length on a competitive basis with third parties.

The government share of royalty for crude oil and natural gas before the cost recovery shall be based on the following table: Crude oil: 0-10,000 barrels of oil per day (B/D): 6% 10,001-25,000 B/D: 8% 25,001-50,000 B/D: 10% 50,001-75,000 B/D: 12% Above 75,000 B/D: 14% Natural gas: 0-60 Million cubic feet per day (mmcfd): 4% 61-150 mmcfd: 6% 151-300 mmcfd: 8% 301-500 mmcfd: 10% Above > 500 mmcfd: 12%.

The government may decide to participate in petroleum operations at 2 times for any development area in the contract area. Within 6 months of a declaration of commercial discovery, the government may decide to participate through a state-owned company. The participating interest may be any percentage up to but shall not exceed 20%. Within 90 days after commercial production, the government may decide to participate through a state-owned company. The participating interest, when combined with that, if any, taken after the declaration of commercial discovery, shall not exceed 20%. Taken together these two participating interests cannot exceed a maximum of a total 20%. The state-owned company shall be responsible for all of its own costs in respect of the petroleum operations covered by the approved development plan. The state-owned company's participating interest in respect of the remainder of the contract area shall be carried and paid for by the company’s (other than the state-owned company) in proportion to their respective participating interests (not including the state-owned company's) until such time as the state-owned company elects to convert its carried interest into a full working interest. If the state-owned company elects to convert its carried interest to a working interest, the development costs, expenditures and obligations incurred by the company (other than the state-owned company) in relation to the state-owned company’s carried participating interest shall be reimbursable by the state-owned company. The state-owned company shall not reimburse any exploration costs whatsoever but the state-owned company will reimburse its proportionate share of development costs out of the government’s profit sharing share. The company is bound by its commitment in its bidding proposal pursuant to the Petroleum Act to assist the state-owned company to secure financial and technical capacity in fulfilling its obligations.

The company shall comply with the procurement requirements established in the Act. The company shall carry on petroleum operations, and shall procure that they are carried on, diligently and in accordance with the Petroleum Act, applicable law, this contract and industry best practice. To be considered for qualification as an operator, the following information must be submitted to the government: the procurement of local goods and services for use in respect of petroleum operations; the employment of local persons; and the transfer of technology and skills and the training of local persons.

The company shall carry on petroleum operations diligently and in a manner that ensures the safety, health and welfare of persons in or affected by petroleum operations.

The company shall make the following annual payments, at its own expense and not as a recoverable cost: (i) A training contribution to the University of [X] and/ or such institution as the government may direct for the financing of training of nationals of Timor-Leste in appropriate fields of study associated with the energy sector as follows: (aa) payment of [X] for the first year of this contract and increasing at a rate of 4% per year until commercial discovery; (bb) in the event of a commercial discovery the amount shall increase to [X] in the year following commercial discovery increasing by 4% per year until commercial production from the first development area; and (cc) where the first development area under this contract has initiated commercial production, these payments shall become 0.25% of the value of company's share of profit petroleum on a monthly basis. (ii) A research and development contribution for the financing of petroleum related research and development activity as follows: (aa) [X] for the first year of this contract and increasing at a rate of 4% per year until commercial discovery; - in the event of a commercial discovery the amount shall increase to [X] in the year following commercial discovery increasing by 4% calendar year until commercial production from the first Development Area and - where the first development area under this contract has initiated commercial production, the payments shall become 0.25% of the value of company's share of profit petroleum on a monthly basis; and (iii) A bonus of [X] to be used for technical assistance and/or equipment to be used by the Government of Timor Leste and payable as directed by the Ministry either: (aa) in cash within 1 month of the effective date of this contract; or (bb) in technical assistance and /or equipment to a total delivered cost of [X]. The company shall fund the award of scholarships for the training of nationals of Timor-Leste in appropriate fields of study associated with the energy industry. The value of such funding shall be [X] for the first year of this contract and increase at a rate of 4% per year for each following year for the term of the contract.

This contract contemplates the construction of facilities in light of the following definition of development: “Development” means operations designed to recover petroleum from a reservoir for commercial purposes and includes design, construction, installation, drilling (but excludes drilling for the purposes of exploration or appraisal), and all related activities.

The company shall, in accordance with the Petroleum Act, provide for third party access to the facilities and other property within the contract area on reasonable terms and conditions.

In the initial period (years 1-3), the company shall carry out the minimum exploration work requirements specified below: Data evaluation = [X] Surveys = [X] Wells = Drilling of at least [X] exploration wells, to a depth of at least [X] meters, true vertical depth below mudline with spudding of such well to be not later than thirty months after the effective date. During the 3 years initial exploration period, the company shall spend a total of not less than US$ [X] dollars to execute geological and geophysical studies, seismic acquisition, processing and interpretation during year 1 of the initial exploration period. The company shall also drill of [X] well(s) during year 2 of the initial exploration period, post–well evaluation and drill [X] well(s) during year 2 of the initial exploration period (or) drill [X] wells in the contract area during year 2 and 3 of the initial exploration period and shall completely perform, unless otherwise agreed, the type of work relating to initial exploration period. In the second period (contract years 4-5), unless the company has relinquished all of the contract area not being a development area or a gas retention area or petroleum retention area before the start of the fourth contract year, the company shall carry out the minimum exploration work requirements (including the minimum expenditure) specified below: Data evaluation = [X] Surveys = [X] Wells = Drilling of at least [X] exploration wells, to a depth of at least [x] meters, true vertical depth below mudline The company’s minimum expenditure for the work required in the second period shall be US$ [X]. In the third period (contract years 6-7), unless the company has relinquished all of the contract area not being a development area or a gas retention area or petroleum retention area before the start of the sixth year, the company shall carry out the minimum exploration work requirements (including the minimum expenditure) specified below: Data evaluation = [X] Surveys = [X] Wells = Drilling of at least [X] exploration wells, to a depth of at least [X] meters, true vertical depth below mudline The company’s minimum expenditure for the work required in the third period shall be US$ [X].

If a dispute has not been resolved within thirty days (or such longer period as agreed by the parties), or if no document recording the resolution is signed within 15 days of a resolution, the parties shall refer the dispute to arbitration. Arbitration between the government and a company shall, as agreed, be conducted in accordance with: (i) the 1965 Washington Convention, or the regulations and rules, of the International Centre for the Settlement of Investment Disputes (ICSID) between States and Nationals of other States; or (ii) the rules set out in the ICSID Additional Facility adopted on 27 September 1978 by the Administrative Council at the ICSID between States and Nationals of other States, whenever the foreign entity does not meet the requirements provided for in Article 25 of the 1965 Washington Convention; or (iii) the rules of such other international instances of recognized standing, (as agreed by the parties). The place of arbitration shall be Singapore. The language of the arbitration shall be English. Both parties waive any claim to sovereign immunity which they may have, both as to process and execution.

This contract is not confidential, and data or information relating to the contract shall not be treated as confidential other than as expressly provided. A copy of this contract shall be made available by the government for inspection by the public during normal office hours. This is in addition to the copy which the government is required to make available to the public in the public register according to the Act. The government may publish or disclose any project data, operational information, and operational information reports to the government. The operational information is not confidential and may be made available to the public by the government as it elects or is requested under the Act. The government shall not publicly disclose or make available, other than as required by the Petroleum Act or for the purpose of the resolution of disputes under this contract, any of the project data until the earliest of: (i) 2 years after it was acquired by the company, unless the parties agree in writing to a different period of time, not to exceed 5 years; (ii) in respect of project data which is included in or relates to a development plan, or approval of that development plan; (iii) in respect of project data which relates to a relinquished area, or relinquishment of that area; (iv) this contract ceasing to apply for any reason to an area, in respect of project data which relates to that area; or (v) expiration or termination of this contract. The government agrees to maintain as confidential and not to disclose to any third party the company's confidential information or the company's developments other than as required by the applicable law or for the purpose of the resolution of disputes under this contract. The company shall not disclose the project data other than: (i) to its employees, agents, contractors and affiliates to the extent necessary for the proper and efficient carrying on of petroleum operations and provided that, prior to disclosure, that person has agreed to maintain the confidentiality of the project data on the same terms as the company; (ii) as required by any law applicable to the company; (iii) for the purpose of the resolution of disputes under this contract; or (iv) as required by a recognized stock exchange.

The laws of Timor Leste