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Algarve Westcoast Oil Contract ENI / GALP - Lavagante Concession

The contracts for the Western Coast of the Algarve have some interesting benefit structures for Portugal. But whether it will bring any real benefit to Portugal, will depend in our opinion on the ethics of the various players, legal loopholes or on how creative the oil companies accountants are. But that is just our opinion. Read our coments and the contracts and then judge for yourself.

This interpretation is a layman's interpretation and not legal opinion. The appropriate legal opinion should be obtained as soon as possible. The original copies of the contract and addendum's (all in Portuguese) are in the attachment section below.

 

Analysis of Contract and Addendum's

This contract was originally signed on 1 February 2007 between the Portuguese government and a consortium comprising Hardman Resources/Galp/Partex. The latest changes to the partners in the concession was made on 18 December 2014, and the new concessionaires are now GALP and ENI.

Not only were the concession owners changed, but also some of the original contract terms and conditions.

Here's some of the most pertinent changes:

  1. change in the duration of the contract from 8 years to 12. (as of 11 September 2014)
  2. changes to benefit to the state as follows:
    - from 2% to 5% per barrel - first 5 million barrels
    - from 5% to 7% per barrel - between 5 and 10 million barrels
    - from 7% to 9% per barrel - more than 10 million barrels

    Above payments will only be due and payable after the concessionary has recovered all costs of research and explorations, and after deduction of all operational costs. Meaning it will only be due once the concessionary reaches profitability status.
  3. funding for such things as - technology transfer programs, acquisition or renewal of specialized technical equipment and the preservation of technical data in digital and other formats - was increased to 75,000€ after the first contractual five years was reached. Till then the fee was 50,000€

 

 

What does it mean for the Portuguese?

With the exception of the fact that manipulation of profits could take place and the company not show profits for many years due to fancy accounting footwork, this contract in our opinion is more straight forward than the contracts for the Algarve Basin although there's plenty of room for improvement.

What is your opinion?

 

 

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