Drafting and Negotiating Petroleum Royalty Agreements

• Introduction 7Part A: Introduction to royalty interests 9A1 The essential elements of a royalty interest 9A2 The characterisation of a royalty interest 10A3 How a royalty interest comes into existence 12A3.1 A royalty interest as a vehicle to facilitate a financial investment 12A3.2 A royalty interest as part of the sale consideration on a transfer of interests 15A3.3 The US model for petroleum exploitation 15A4 The concessionary interests 17A5 The produced petroleum 19A6 The subject interest 21A7 The royalty rate 23A8 The economic balance of the royalty interest 24A9 The form of execution of a royalty agreement 27A10 Mineral interest royalties 28Part B: The economic underpinning of royalty interests 29B1 The royalty in kind 30B2 The cash royalty 31B3 The gross overriding royalty 36B4 The net profit interest 36B5 Upstream petroleum granting instrument royalties 43Part C: Basic elements of a royalty agreement 45C1 Ambit 45C2 Audit and inspection 47C3 Boilerplate provisions 50C3.1 Confidentiality and announcements 50C3.2 Conflicts management 50C3.3 Entire agreement 51C4 Duration 51C4.1 Commencement 51C4.2 Term 52C4.3 Termination 54C5 Information provision 55C6 Governing law and dispute resolution 57C6.1 Governing law 57C6.2 Dispute resolution 58C6.3 Custom and practice 58C7 Performance, breach and liability 59C8 Production covenants 61C9 Production indemnities 65C10 Relationship with the JOA 68C11 Statements and payment mechanics 69C12 Taxation allocation 71C12.1 The royalty holder’s liability 71C12.2 The producer’s liability 71C12.3 Taxation allocation 72C13 Transfers 73C13.1 Transfers by the producer 73C13.2 Transfers by the royalty holder 77C13.3 General 77C14 Warranties 78Part D: Additional provisions in a royalty agreement 81D1 Collateral support 81D2 Conversion rights 84D3 Expropriation protection 86D4 Fiduciary duties 87D5 Force majeure 88D6 Insurance 90D7 Management of competing interests 90D8 Pooling and unitisation 91D9 Redemption rights 93D10 Registration 95D11 Replacement upstream petroleum granting instruments 96D12 Suspension rights 97Part E: Related arrangements 101E1 Royalty-repaid carry costs 101E2 Payout arrangements 102E3 Volumetric production payments 105E4 Illustrative agreement participation 109Notes 109Index 113About the author 117About Globe Law and Business 119

The latest book by Peter Roberts, Drafting and Negotiating Petroleum Royalty Agreements, is a timely examination of one of the key project contracts that underpin such exploration and production… Points made throughout the book are often accompanied by drafting or worked economic examples. While the author notes these ‘represent the counsel of perfection’, they do provide an extremely useful reference to better illustrate the points being made… Overall, this book is likely to be a valuable resource for legal practitioners, energy industry professionals and students who are interested in learning or refreshing their knowledge of petroleum royalty agreements.