Petroleum Joint Venture Agreements by ytm52584

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									       Oil Resources in Developing Countries:
                   Political Risk

What is “political risk”?
Short of nationalization, what sort of political risks
  can undermine the value of a firm‟s investment?

      Nationalization/expropriation
      Policy change (regulatory; monetary)
      Terrorism/war/civil strife

How can firms contemplating investment in
  developing countries predict this risk?
       Oil Resources in Developing Countries:
                   Political Risk

Predicting Risk:
   • “Grand Tours” approach
   • “Old Hands” approach
   • Quantitative analysis
   • Qualitative analysis: “Delphi” technique

Do you think political risk is predictable?
      Oil Resources in Developing Countries:
                  Political Risk

“corporate managers came to view risk analysis as
an „ivory tower exercise,‟ rooted in academic theory
rather than managerial practice.”
                        HBS Note on Political Risk


Then how do companies (or their investors or
  insurers) decide when political risk is too
  great? What characteristics do you think are
  correlated with political-legal stability, or
  negatively correlated with political risk?
Oil Resources in Developing Countries: Political Risk


Bergara, Henisz and Spiller:
    1. Veto points in the policy process (e.g., divided
       government, separated powers, federalism)
    2. System stability, but political change
    3. Strong independent bureaucracy & judiciary
   In other words, “credible commitments against
               arbitrary policy changes”
Oil Resources in Developing Countries: Political Risk

 How can corporate managers manage political
   risk?

        •   Insurance
        •   Sharing risk with host nation
         Modern Petroleum Agreements

What are the important differences between these
  different methods of foreign participation in
  developing domestic oil resources?
     • Licensing/concession
     • Joint venture
     • Production sharing agreement
     • Service contract
 Modern Petroleum Agreements: Legal systems
1. Legislatively-prescribed terms
   Standardization  equal treatment
   Rigidity (how?)
   Government bargaining power?
2. Delegation to national oil company
   Flexibility  best deal (how?)
   Comparison problems  potential corruption or
         discrimination
3. Hybrid system
         Modern Petroleum Agreements

Selecting contractor/developer:

   What are the differences between these
   approaches? What are the
   advantages/disadvantages of each?
      • Discretionary licensing
      • Auction
      • Open Competition

What is “contractor take”?
Oil Resources in Developing Countries: Political Risk
Which of the following constitutes “corruption”?
   • Paying bribes to government officials
   • Paying filing or transaction fees to governments
     that exceed actual transaction costs
   • Giving gifts to government officials
   • Making large contributions to the campaigns of
     elected officials who make authoritative
     decisions affecting your business
What do you think of the U.S. Foreign Corrupt
  Practices Act? Should it be repealed? Exactly
  what does it prohibit?
 What are the political risks associated with
 investment in oil development in:
 Nigeria            Kazakhstan            Uzbekistan
Dependence        Regime duration,      Excessive
on oil            but demonstrated      governmental
revenues, but     experience with       control, regime
                  PSA privatization,    duration
Ethnic violence
& vandalism       Disputed              Export /
                  ownership issues      transportation
Federalism
                                        issues
ownership         Export /
issues            transportation
                  issues
JV funding
problems
       International Law and Political Risk

When problems arise between the foreign
  developer and the host country (or its
  representative), what legal rights do aggrieved
  companies have? How are disputes resolved,
  typically? What do these doctrines have to do
  with this question?
     • sovereign immunity
     • political question
     • act of state

								
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