Licence regime

A licence (referred to in some countries as a lease) is essentially a permission granted by a state to an IOC to exploit a certain geographical area in return for a fee or a royalty. All hydrocarbons are owned by the state in situ, but ownership or any extracted hydrocarbons transfers to the IOC at the well-head. Therefore, the license grants the licensee a proprietary right over the hydrocarbons at such point and any profits obtained by the IOC from sale of the hydrocarbons are taxed by the state. The licensing regime is a relatively free market regime, under which the IOC bears most of the risk and enjoys a significant share of the benefits and is allowed to pursue it interests with relative freedom, subject to environmental, timing and other constraints imposed by the terms and conditions of the licence.

– Geoffrey Picton-Turbervill (ed), Oil and gas: a practical handbook (Globe Law and Business, 2009), p29.

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