Page 413 - Hydrocarbon

400 Managing the External Factors

government, an agreed production target is set. Penalties may be incurred if the
target is not met within a tolerance level of typically 5%.
The oil company will also be required to periodically submit reports to the NOC
or government, and to partners in the venture. These typically include

well proposals
FDPs
annual review of remaining reserves per field
six-monthly summary of production and development for each field
plans for major incremental projects, for example implementing gas lift.

Market forces determine the demand for a product, and the demand will be
used to forecast the sales of hydrocarbons. This will be one of the factors consi-
dered by some governments when setting the production targets for the oil
company. For example, much of the gas produced in the South China Sea is
liquefied and exported by tanker to Japan for industrial and domestic use; the
contract agreed with the Japanese purchaser will drive the production levels set by
the NOC.
The demand for domestic gas changes seasonally in temperate climates, and
production levels reflect this change. For example, a sudden cold day in Northern
Europe causes a sharply increased requirement for gas, and gas sales contracts in this
region will allow the purchaser to demand an instant increase (up to a certain
maximum) from the supplier. To safeguard for seasonal swings, imported gas is
frequently stored in underground reservoirs during summer months in salt caverns
or depleted gas fields and then withdrawn at times of peak demand.
Contracts made between the oil company and supply or service companies are a
factor which affects the cost and efficiency of development and production. This is
the reason why oil companies focus on the types of contract which they agree. Types
of contract commonly used in the oil industry are summarised in Section 13.5,
Chapter 13.
Legislation in the host country will dictate work practices and environmental
performance of the oil company, and is one of the constraints which must be
managed. This may range from legislation on the allowable concentration of oil in
disposal water, to the maximum working hours per week by an employee, to the
provision of sickness benefits for employees and their families. The oil company
must set up an internal organisation which passes on the current and new legislation
to the relevant parts of the company, for example to the design engineers, operators,
human resources departments. The technology and practices of the company must
at least meet legislative requirements, and often the company will try to anticipate
future legislation when formulating its development plan.
One particular common piece of legislation worth noting is the requirement for
an EIA to be performed prior to any appraisal or development activity. An EIA is
used to determine what impact an activity would have on the natural environment
including flora, fauna, local population, and will be used to modify the activity
plan until no negative impact is foreseen. More details of the EIA are given in
Section 5.3.1, Chapter 5.