• 1859 – Colonel Drake struck oil in Titusville, Pennsilvania, USA

• 1901 - On January 10, Spindletop, an oil field located just south of Beaumont, Texas, produces a "gusher" that spills out 100,000 barrels of oil per day.

• 1908 - Ford Motor introduced the “Model T” will make the automobile accessible to many Americans and drive consumer demand for gasoline, a previously little used byproduct of the petroleum refining process.

• 1911 - Standard Oil is ordered to be broken up into 34 smaller companies after the United States Supreme Court declares the company an "unreasonable" monopoly under the Sherman Antitrust Act.

• 1914-1918 - During World War I, strategists for all the major powers increasingly perceive oil as a key military asset due to the adoption of oilpowered naval ships, new horseless army vehicles such as trucks and tanks, and even military airplanes.

• 1928 – Achnacarry Agreement (“As-Is”)

• 1933 - Saudi Arabia allows Standard Oil to begin prospecting for oil in the country's eastern province. In 1938, the company's efforts paid off when a well near Dhahran yielded commercial quantities of crude oil.

• 1943 – Venezuela introduces the Fifty-Fifty principle

• 1939-1945 - The Allied forces' access to oil was considered a crucial factor in their victory over the Axis powers in World War II. Recognizing the limited supply of oil resources and its importance to the future of the nation, oil policy becomes a high priority for the U.S. at the end of the war.

• 1956 – Oil is discovered in the Niger Delta

• 1951 – President Mohammed Mossadegh nationalized Iran’s oil industry

• 1960 - On September 14, the Organization of the Petroleum Exporting Countries (OPEC) is formed for the purpose of negotiating with oil companies on matters of petroleum production, prices, and concession rights. The first member nations of the cartel are Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela.

• 1973 - On October 17, OPEC member states declare an oil embargo against nations that had supported Israel during its war (known by many as the Yom Kippur War) with Egypt, Syria, and Jordan. The energy crisis that followed saw oil prices quadruple and the New York Stock Exchange lose $97 billion in share value, bringing on the worst recession since World War II.

• 1979 - A second energy crisis occurs in 1979 after the Iranian Revolution transforms oil-rich Iran from an autocratic, pro-West monarchy under the Shah to an Islamic theocracy under the rule of Ayatollah Khomeini. Iran's oil supply is largely curtailed, prompting President Jimmy Carter to call the new energy crisis "the moral equivalent of war" in a nationally televised speech.

• 1980’s – Oil prices collapse and several attempts of oil pricing methodologies.

• 1990 - On August 2, Iraqi forces under Saddam Hussein invade Kuwait and seize control of the oil-rich emirate. Recognizing that they will likely soon be pushed out of Kuwait, Saddam Hussein's forces begin setting fire to Kuwaiti oil wells in January. Approximately 700 production wells are sabotaged, and the total spillage of crude oil is estimated to be anywhere between 46 and 138 million tons. Western forces launch Operation Desert Storm on January 17, and Kuwait is officially liberated by late February. The last Kuwaiti oil well is capped in November. • 1998 – The world oil price drops to $10 a barrel.

• 2002 - Ground is first broken for the construction of the monumental Baku-Tbilisi-Ceyhan (BTC) pipeline. In order to bring Caspian oil to thirsty world markets, a consortium of oil giants is formed in order to construct a pipeline that will traverse several problematic social, environmental, and geopolitical regions.

• 2000-2005 – OPEC “band system”

• Mid-2000’s – Shale Gas / Tight Oil Revolution began…

• 2014 – Prices crashed (…again) • 2015 – Oil is discovered in Guyana (Liza-1)

• 2020 – Oil Price (WTI) turns negative (US$ - 37.36 p/b)

• 2022 – Oil is discovered in Namibia (Venus-1)

• 2022 – Russian invasion to Ukraine.

Ø  Who produce oil and gas?

1.      IOC (integrated oil company): investor owned, investment based on economic factors, decision made in the interest of the company, not the government.

2.      NOC (national oil company): extension of the government, objectives are not necessarily market oriented.

3.      NOCs with strategic and operational autonomy: corporate entities and donot operates as a government extension. Profit oriented + country development. Mainly commercially driven.

Ø  Spare capacity: occurs when a business is not making full use of its available capacity. Volume of oil production to buy online within 30 days, can be sustained 90 days.

Ø  Type of crude oil: it reposes on 2 factors.

1.      Gravity: compute with the API gravity = density of oil / density of water

API is referred as degrees. The denser the gravity is, the lower the API gravity is. The oil’ weight is the most important factor to classify it.

2.      Sulphur content: sweet and sour refers to the sulphur content, crude oil is sweet if <0.5% sulphur. Sour crude has more than 0.5% sulphur.

Sweet crude is found in Appalachian Basin in Eastern North America, Western Texas, the Bakken Formation of North Dakota and Saskatchewan, the North Sea of Europe, North Africa, Australia, and the Far East including Indonesia.

Sour crude is found in Gulf of Mexico, Mexico, South America, and Canada.

Ø  Global Oil market players:

1.      Producers: IOC & NOC.

2.      Consumers: individuals, transportation, industrials.

3.      Traders, hedgers, speculators, and investors

4.      Policymakers: demand side, supply-side, market regulation.

Ø  Factors Influencing Oil Prices Formation:

Supply, physical balancing (inventories), markets and market behaviour (energy price), demand.

Ø  Benchmark: (different crude oil)

1.      West Texas Intermediate (WTI): API gravity 39.6° and 0.24% sulphur content. Trade in the NYMEX-CME.

Sweet crude oil, delivery point is Cushing Oklahoma to dozens of pipelines around US. Market price reference. most efficient hedging tool for hundreds of commercial oil companies. WTI futures and options are the most traded energy contract.

2.      Dated Brent: API gravity 38.06°, and 0.37% sulphur content, traded in the ICE (intercontinental exchange). Based in the NorthSea market.

3.      Dubai/Oman (Platts): API gravity of 33.6º and 1.68% of sulphur content. Pricing reference in Middle East Gulf, Russia, US Gulf Coast, Mexico since spot market emerged in the 1980’s.

Ø  Hydrocarbon Industry Value chain:

1.      UPSTREAM: exploration and production (E&P)

Exploration is about searching for indicators to produce oil in trapped accumulations. A crude reservoir comes from a source, a reservoir, or a cap rock. Once the potential resource is identified, one or more exploration wells are drilled. You can then determine the amount of oil of natural gas. Finally, you decide if it is profitable of not to produce. (size of the resources, costs, timing)

Production: Development wells are used to start the production. Completion is the final installation of equipment to produce to crude (…or not) | Dry Wells | Production Wells | Injection Wells. Production well completion involve building the surface installations to extract, store and send to the market the crude oil.

2.      MIDSTREAM: transportation (ship or pipeline), trading and marketing

Pipelines: used to move crude oil from the wellhead to the refineries. Has booster pump to maintain the high pressure. A pipeline can handle several types of crude oil.

Tankers: product tankers (from refineries to terminal) and crude oil tankers (from field to refineries). Tanker’s size is expressed in terms of deadweight (dwt) or cargo tons.

3.      DOWNSTREAM: refining and marketing (R&M), chemicals, LNG regasification.

Refineries: manufacture products such as gasoline from crude oil or other feedstocks. The capacities and the types of processing units differ between refineries.

Here are the types of refineries:

-        Topping: separates the crude into petrol products by distillation (known as Atmospheric distillation), produces naphtha but no gasoline.

-        Hydroskimming: equipped with Atmospheric Distillation, produce gasoline.

-        Cracking: equipped with vacuum distillation and catalytic cracking. reducing fuel oil by conversion to light distillates and middle distillates

-        Cocking: process the vacuum residue into high value products suing the Delayed Coking Process

Ø  Ownership of minerals resources:

What is ownership? è “Collection of rights to use and enjoy property, including right to transmit it to others. The right of one or more persons to posses and use a thing to the exclusion of others”

Ø  Private ownership of mineral resources: US & Canada + Trinidad and Tobago (offshore). They are the only one doing private ownership.

US: interest in oil and gas might be owned by anyone. Exploration and operation are owned by the federal government. Each state with its own laws.

Mineral estate Texas 5 rights:

1.      The right to explore for and develop the minerals.

2.      2. The executive right, which is the right to execute an oil and gas lease.

3.      3. The right to receive a bonus.

4.      4. The right to receive a royalty.

5.      5. The right to receive delay rentals.

Ø  The rule of capture: oil and gas move as fish. The general rule is that the first person to "capture" such a resource owns that resource. The owner of a tract of land acquires title to the oil or gas which he produces from wells on his land, though part of the oil or gas may have migrated from adjoining lands.

Ø  Rig Count is defined by Baker Hughes as “a weekly census of the number of drilling rigs actively exploring for or developing oil or natural gas in the United States and Canada.”

Ø  Fundamental issues of state ownership: the sovereign state is often designated as the owner.

Ø  Mexico has a public ownership of hydrocarbons: the nation is the owner; private enterprise can report for accounting and financial purposes. Companies may book “Reserves” which is defined as: “as the estimated remaining quantities of oil and gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production of oil and gas, installed means of delivering oil and gas or related substances to market, and all permits and financing required to implement the project”.

Ø  Hydrocarbon Volumes classification:

1.      Reserves: quantification of expected futures production from discoveries. Subject to development. Only hydrocarbons expected to be recovered by the part being developed can be classified as reserves. Reserves are classified as proved, probable, or possible.

2.      Contingent resources: hydrocarbon discovered, but development is not sufficient yet. Development might be high or low regarding the discovery.

3.      Prospective resources:  might not exist at all. Needs to be discovered by drill, because seismic is not accepted as a proof of discovery.

Ø  Reserves/Replacement ratio: metrics used to judge the operating performance. Amount of proved reserves/ amount of oil and gas produced. Must be at least 100% to stay in business long term.

Ø  Stranded Assets (actifs échoués): assets which are no longer profitable, end of economic life. Assets such as pipeline, tankers, oil and gas currently in the floor, are now worth less than expected because of energy transition.

Ø  Transfer of title: is made at a very specific point “will be effective when such crude oil passes through the connection between the cargo hose of the shipment pipe to the oil tanker’s” – “at the Measuring Point

UNIT 2: The Great Reinvention. From Oil and Gas Companies to Energy Companies + Unit 3: The Tension and Alignment Cycle. Host Governments and International Oil Companies (IOCs) Dynamics

Ø  Hydrocarbons Fiscal Regime: contractual, legal, and regulatory elements governing the relationship & economic benefits between the Host Government and IOC/Contractor/Investor. Generally used for upstream.

A country can have more than 1 regime: for different hydrocarbon types, types of fields, field location (onshore/offshore), conventional/unconventional field.

All hydrocarbons’ contracts are different.

Regime types:

1.      Concessionary (ROY/TAX system)

2.      Contractual system (host country) 57%

How is the payment received?

a)      In cash (service agreement)

b)     In kind (Production sharing agreement)

Government takes: “state take” is the government take. State take = state cash flow / gross project cash flow

Divisible income = total gross revenue from the O&G field – capital & operating cost

There are more hydrocarbons fiscal regimes than countries.

Ø  Types of contracts:

1.      PSC: contractor assumes all exploration risk and costs and get a share of the oil and gas produced. If there is a discovery, the production is split between the parties according to the defined PSC formulas.

2.      Concessions or Licences (R/T):  The host government compensation will typically include royalty and tax payments.

3.      Risk service contract: contractor assumes E&P services for the government within a specified area in exchange of a fee.

Ø  Exploration period duration: (examples)

Azerbaijan – 1996 PSA: 3 years + a potential additional exploration period of 12 months

Cyprus – 2012 PSA: 3 years + a first renewal period of 2 years + a second renewal period of 2 years

Ø  Exploration obligations: minimum requirement of exploration

Ø  Declaration of commerciality: writing about the discovery and its commerciality. Then the production can start.

Ø  Economic balance: In case of any changes in law, rules or regulations, the parties must consult to revise and adjust the terms of contracts.

Ø  Common Ancillary Contracts:

Accounting provisions

Joint Operating Agreement (JOA): is needed when the project has more than one participant interested, or one participant with a Farm-out Farm in agreement.

Farm-in/Farm-out Agreement: a company holding the E&P enter with a 3^RD party to carry out some operations (reduce risks and costs). Government approval is required.

JOA is about sharing of rights and liabilities under the granting contract. All rights and liabilities arising in connection with the granting contract will be shared between the licensees in proportion to their participation. JOA has a joint operating committee composed of representatives of each parties holding a participation interest. During the operational committee, the vote of the Managing party represents 50%, the other 50% is divided between other party.

Oil industry has a long history of cooperation between competitors.  

Ø  Production Sharing Agreement:

“Production sharing agreements (PSAs) or production sharing contracts (PSCs) are a common type of contract signed between a government and a resource extraction company (or group of companies) concerning how much of the resource (usually oil) extracted from the country each will receive.”

Ø  Production sharing: i.e., what is left after royalties and cost recovery. It can increase with daily rate of production increase, cumulative production increase, ROR (rate of return).

Ø  Cost recovery: ceiling (plafond) + rate + uncovered costs

Ø  Service agreement:

1.      Risks service contracts: contractor carries out the development work on behalf of the host countries for a fee. Production belongs to the state. Cost can be recovered.

2.      Pure service contracts: defined service to be covered. Paiement is based on day or hours.

Ø  Oil and gas current state:

Oversupplied market for several years, then covid hits wiping out 27% of demand. O&G companies are going to Energy companies meaning less money to E&P and more to renewables. Cost reduction to O&G.

Government is reperceiving the future: the sense of urgency is embraced, so countries are trying to improve. Virtual bidding rounds is the next step. E&P is constraints by environmental concerns.

Ø  Important Changes to the PSA model between 2017-2019:

Greater interaction with potential investors + PSA model under constant evaluation + Less State* intervention *Petrobras

Ø  What can Host Government (HG’s) do in the Energy Transition?

Putting new regulations, better monitoring è Emissions reduction plan

Gas flaring: Non-emergency flaring and venting occur when oil field operators opt to burn the "associated" gas that accompanies oil production, or simply release it to the atmosphere, rather than to build the equipment and pipelines to capture it.