This document provides an introduction to effective negotiation skills for oil and gas agreements. It discusses key concepts such as the upstream, midstream, and downstream phases of oil and gas operations. It also outlines the typical business cycle from licensing to production to downstream activities. Additionally, it examines the legal framework governing Tanzania's oil and gas sector. The document emphasizes that negotiators must understand industry segments and risks to negotiate sustainable contracts. It also identifies common challenges like managing relationships and resources that are important for successful contracting. Finally, the document notes basic obstacles to effective negotiations like limited negotiation skills, expertise, and policy positions that countries may face.

1. INTRODUCTION TO EFFECTIVE NEGOTIATION SKILLS
ON OIL AND GAS AGREEMENTS
By
Prof Handley Mpoki Mafwenga,
[Ph.D, MSc, LLM, MBA, PGDTM, ADTM, LLB, FCTA (UK)]
Macro-Fiscal Policy, Advocacy & Tax Expert[Gov-URT]
MINISTRY OF ENERGY AND MINERALS (TMAA)
Oil & Gas Contracting and Negotiation Workshop Organized by the Tumaini
University Makumira-Dar-es-salaam College Held at Tamar Hotel Dar-Es-Salaam
on 13th to 18h April, 2015

2. A: INDUSTRY SEGMENTS [Simplified Example]

3. A: INDUSTRY SEGMENTS [SIMPLIFIED EXAMPLE]
Upstream: All necessary activities to find hydrocarbon
reserves and bring them to the surface
Phases of Upstream Operations; (1)Initial prospecting (2)
Mineral right acquisition (3) Exploration (4) Appraisal (5)
Development [proved] (6) Production and (7)
Abandonment & restoration
The common feature of the upstream Phase is the high
risk involved, which enforces companies to seek high IRR.
Midstream and Downstream: Activities related to crude
oil/ petroleum products’, importation, storage,
transportation, further processing supply [refining],
marketing and selling of petroleum and the activities of
associated industries; they are basically less risky
ventures.

4. B: BUSINESS CYCLE
Licensing
Prospect
Exploration
Drilling
Production
Drilling
Downstream
-Negotiation
with
Governments /
Individuals (URT)
- Different types
of contracts:
royalties, PSA,
service contract,
etc
- Geological
characteristics
- Seismic
evaluation
- Infrastructure
set-up .
-Uncertainty
- Analysis of
formations and
hydrocarbon
characteristics
Onshore / Offshore
- Full scale
project
-Field
optimization
-Definition of
drilling program
and well profiles

5. C: LEGAL FRAMEWORK OF OIL AND GAS SECTOR
Upstream legislations;
National Energy Policy 2003
Petroleum (Exploration and Production) Act, 1980
The Model Production Sharing Agreement, 2008
(MPSA) between the Government, TPDC and the Oil Company.
Downstream legislations
Natural Gas Policy, 2013.
Natural Gas Act (in the making )
National Gas Utilization Master Plan
Crosscutting Legislations
Occupational Safety and Health Act, 2003
Environmental Management Act, 2004
Tax Legislations
Public-Private-Partnership Act, 2010

6. D: THE LINK BETWEEN INDUSTRY SEGMENTS AND CONTRACTS
• Upstream, Midstream and Downstream operations are
legally framed by contracts.
• Due to the location of the resources such as
hydrocarbons, infrastructure, economic, human capital,
and the global nature of the demand, these contracts
are usually international.
• During Negotiation some issues may not be anticipated
in the contract, and the circumstances may change
causing parties difficult to comply with its obligations or
national policies can be modified. Hence, oil and gas
contracts become risky for IOCs which, in order to gain
returns on their investment, need a certain degree of
juridical stability.

7. QUALITIES AND ROLE OF THE NEGOTIATOR ON INDUSTRY
SEGMENTS AND BUSINESS CYCLE
• Negotiators are required to know the industry
segments and Business Cycle so as to know
what are they negotiating for. They are entitled
to know the risk factors that could erode the
contractual integrity and come up with the
options that could put in place sustainable
development of operations, credibility of the
Contracts, and predictability of positive
outcomes

8. QUALITIES AND ROLE OF THE NEGOTIATOR ON INDUSTRY
SEGMENTS AND BUSINESS CYCLE
• Staff involved in contracting should have, at a
minimum, a broad understanding of the legal
and policy framework, as well as a practical
working knowledge of contracting practices that
apply to the particular contracting activity in
which they are engaged
• They should know a range of policy and legal
requirements and supporting guidance that
addresses various aspects of procurement (eg
PPRA).

9. E: THE NEGOTIATION LIFE CYCLE IN THE STAGES OF OIL
PROJECT DEVELOPMENT

10. F: STAGES & CASH FLOW CYCLE FOR OIL EXPLORATION

12. G: NEGOTIATIONS AND OUTCOMES
• Conducting negotiations Properly would likely attracts
oil and gas companies and this should go in tandem
with proper regulation of their activities in order to yield
positive final outcome
• when actually negotiating contracts—it is important to
have a clear sense of the role the contract plays within
the overall policy and legal frameworks and, as a related
point, what the country hopes to accomplish through the
contract.
• Likewise, it is important to understand what companies
might reasonably hope to accomplish through the
contracting process. [This is a Mirror effects approach]

13. G: NEGOTIATIONS AND OUTCOMES
• Any contractual system must be evaluated in the
context of the capacity of the government to
administer that contract. Every case within the
contractual framework has to consider the
capacity of the government to administer
multiple contracts at the same time.
• Entrenching contract negotiations into the
overarching development strategy is
fundamental to enable a country reap a good
deal and use its mineral wealth wisely.

14. H: COMMON ISSUES IN SUCCESSFUL CONTRACTING
Managing Risks
Managing relationships- To keep the communications
between the parties open and constructive, non
adversarial and based on mutual understanding
Managing resources- eg senior management support,
the ability to access expert advice as necessary;
availability of personnel with interpersonal, subject
matter and project management skills.; contractor’s
capabilities
Specifying responsibilities-Establishing clear lines of
responsibility and accountability for all decision-
making

15. H: COMMON ISSUES IN SUCCESSFUL CONTRACTING
Behaving ethically-Ethical behaviour supports openness
and accountability in a procurement process and gives
suppliers confidence to participate in the Government
market place. Reduce the cost of managing risks
associated with fraud, theft, corruption, and other
improper behaviour, and enhance confidence in public
administration.
Keeping records- Records must be created and received in
procurement activity at the beginning of a procurement
process and throughout the contracting cycle, in
accordance with the entity’s recordkeeping policies and
procedures so as to provide evidence of business and
decisions made, manage legal and other risks, and
meet its accountability obligations.

16. I: DRIVERS OF CHANGE
Prices: record-high oil price highlights inadequacies in
contracts signed under low-price conditions.
Control: some government want greater control over
petroleum sector (e.g. to leverage public policies, equity
gains, patronage) or resource nationalism.
Competition: most hydrocarbon reserves are hold by NOC
and more players compete for new acreage, which
provides countries an opportunity to impose tougher
terms and makes companies willing to pay.
Incentives to investment: reducing government take is still
common in mature producers, net energy importers,
frontier areas, marginal fields, deep-water projects.

17. J: CONTRACTUAL INSTRUMENTS/TERMS [HYDROCARBON LEGAL
ARRANGEMENTS ]

19. HOW TANZANIA ABIDE TO THE PSA IN Petroleum Fiscal
Regime NEGOTIATIONS

20. K: BASIC OBSTACLES IN THE RUN UP TO NEGOTIATIONS
1. Skills Capacity: Low skills capacity in the generic
techniques of negotiation;
2. Expert Knowledge: Limited access to expert
knowledge in the field of international law;
3. Issue-based Knowledge and Expertise:
Limited availability of issue-based knowledge and
expertise, especially where diplomats have been
following or pursuing negotiations on behalf of a
country;
4. Prior and Agreed Policy Position: The related
problem of not having a prior and agreed policy
position on an issue; and
5. Regional important issues: A limited grasp of the
most important issues pertaining to a particular

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