LEGAL FRAMEWORK

1
LEGAL FRAMEWORK

• PRODUCTION SHARING CONTRACT

February 2006
2

• CUPET IS AUTHORISED BY ITSELF OR IN ASSOCIATION
  WITH INTERNATIONAL OIL COMPANIES TO EXPLORE AND
  EXPLOIT HYDROCARBONS IN CUBA

3

• COMMERCIAL CUPET S.A. IS RESPONSIBLE FOR
  DEVELOPING AND ENTERING INTO CONTRACTS WITH
  FOREIGN INVESTORS IN BOTH UPSTREAM AND DOWNSTREAM
  SECTORS IN CUBA, INCLUDING OIL COMPANIES AND
  SERVICE COMPANIES

4
LEGAL FRAMEWORK

• Constitution
• Civil Code
• Law of Foreign Investment

5
LEGAL FRAMEWORK

• CONSTITUTION
• The Cuban State acknowledges the ownership of
  joint venture, societies and economic
  associations, created according to law. (Article
  23)

6
LEGAL FRAMEWORK

• CIVIL CODE
• The State acknowledges the ownership of joint
  ventures, and other legal persons which are
  governed by the law, its estatutes and by-laws.
  (Article 160).

7
LEGAL FRAMEWORK

• LAW OF FOREIGN INVESTMENT
• Defines the legal principles, financial and
  commercial rules, fiscal duties and labour regime
  of foreign investments.
• Regulates creation, organisation and functions of
  joint ventures and economic associations with
  foreign interests.

8
LEGAL FRAMEWORK

• LAW OF FOREIGN INVESTMENT
• It is the legal framework for petroleum
  contracts.
• PSC is an economic association between CUPET and
  the contractor company.

9
PRODUCTION SHARING CONTRACT

• CUPET presents interested companies a model of
  Production Sharing Contract (PSC), which takes in
  account the experiences in other countries and
  worldwide trends.

10
PRODUCTION SHARING CONTRACT

• NO BID ROUND
• Interested Companies should previously obtain the
  Certificate of Qualification issued by the
  National Office of Minerals Resources.
• Afterwards, company shall negotiate directly the
  PSC with Commercial CUPET S.A.

11
PRODUCTION SHARING CONTRACT

• Every contract is approved individually by the
  government
• Duration
• Onshore and Shallow waters 25 years
• Deep offshore 30 years for oil
• 35 years for gas

12
PRODUCTION SHARING CONTRACT

• Contract is divided into
• Exploration Period.
• Exploitation Period.
• The Exploration Period is divided into
  subperiods.
• At the end of each subperiod, Contractor shall
  decide to enter or not in the next one.

13
PRODUCTION SHARING CONTRACT

• Minimum Work Program for Exploration Period in
  seismic and wells shall be set during
  negotiations.
• Amount of obligatory expenses is not required.

14
PRODUCTION SHARING CONTRACT

• Sharing of production and
• of production for cost recovery
• Shall be negotiated according to hydrocarbon
  potential and characteristics of each block.

15
PRODUCTION SHARING CONTRACT

• After a discovery, Contractor can propose an
  evaluation program.
• According to the results of the evaluation
  program, Contractor shall propose a Declaration
  of Commerciality.
• Once the Declaration of Commerciality is
  approved, Contractor shall present the
  Development plan and enter in the Exploitation
  Period.

16
PRODUCTION SHARING CONTRACT

• Cuba shall have the first option for purchasing
  the Contractors crude oil.
• If Contractor sells the oil in Cuba it will be
  paid at international market prices.
• No tax if oil exported.

17
PRODUCTION SHARING CONTRACT

• FISCAL REGIME
• 30 tax on Annual Net profit
• NO ROYALTIES
• NO SIGNATURE BONUS
• Equipment and materials imported pay custom
  duties, but these are considered reimbursable.

18
PRODUCTION SHARING CONTRACT

• CURRENCY AND FINANCE
• Contractor has the right to
• Open bank accounts.
• Receive and withdraw revenues.
• To make payments and transfer quantities.

19
PRODUCTION SHARING CONTRACT

• MANAGEMENT
• Administration Committee
• 3 members from each side
• Authority of Contractor to conduct operations.

20
PRODUCTION SHARING CONTRACT

• ARBITRATION PROCEDURE
• Arbitration Rules of the International Chamber of
  Commerce

21
CONCLUSIONS

• SINCE DECEMBER 1990 HAVE BEEN SIGNED 25
  ONSHORE AND OFFSHORE CONTRACTS WITH OIL FOREIGN
  COMPANIES. ACTUALLY, 20 ONSHORE OFFSHORE
  BLOCKS ARE UNDER LICENSE