Page 27 - Hydrocarbon Exploration and Production Second Edition

14 Farm-in and Farm-out

PSA Time Provisions

Signature Exploration Period Exploration Failure Lease
Bonus expires
Wells
Success

Declaration of
Commercial Well

Typically 2 years or
6 months from 2nd
Appraisal Failure
appraisal well Wells
Success
Declaration of Development Area
DCD bonus
Commercial Discovery defined
No
development
Further Development Area
Maximum 6 years app & eval lapses
to production

Development
Production Bonus Decision to develop
Capex & Opex
Typically 25 year production period

Figure 2.3 Example of sequence of events in a PSA.

shows an example of drilling up a commitment of three wells, and shooting 2-D
seismic, whilst relinquishing fractions of the block during this time.

2.4. Fiscal System

The Petroleum Agreement will also include a description of the fiscal terms by
which the Government will claim its share of revenues during the production
period. This will fall broadly into four categories, as shown in Table 2.1.
Within these broad categories, there are in excess of 120 different fiscal systems in
place around the world. Some 50% of these are PSAs and 40% Tax and Royalty
systems. More details of these two most common systems are covered in Chapter 14.

2.5. Farm-in and Farm-out

The participants in the block may change over time, for various reasons.
Firstly, in a PSA the Government may choose to award the block to several
companies, imposing a preferred split and a nominated operator. With the approval