POLAND MARKS PROGRESS ON EXPLORATION PLANS

Poland is proceeding with plans to offer its first oil and gas exploration concessions to foreign companies since World War II. The Polish Bureau of Geological Concessions (PBGC) will unveil details of areas to be opened, legal/contractual framework, application procedures, and technical data related to the first concession bidding round at presentations in London and Houston next month.

June 17, 1991

3 min read

Poland is proceeding with plans to offer its first oil and gas exploration concessions to foreign companies since World War II.

The Polish Bureau of Geological Concessions (PBGC) will unveil details of areas to be opened, legal/contractual framework, application procedures, and technical data related to the first concession bidding round at presentations in London and Houston next month.

Robertson Group plc, Llandudno, North Wales, is coordinating the presentations, scheduled for July 3 in London and July 9 in Houston. Polish government and World Bank officials will attend the presentations.

The government also has provided further details of its legal, fiscal, and regulatory framework for participation by foreign companies in its oil sector (OGJ, May 27, p. 32).

LEGAL FRAMEWORK

PBGC outlined these legal and contractual terms for foreign companies participating in Poland's oil, gas, and coalbed methane operations:

All mineral deposits in Poland are the property of the state treasury and controlled by the Ministry of Environmental Protection, Natural Resources, and Forestry under the Mining Law of May 6, 1953, Geological Law of Nov. 16, 1960, and amendments to both by act of Parliament Apr. 26, 1991.
Because the two key laws cover all mining activities, specific issues related to petroleum are dealt with in a contract between the ministry and foreign companies, a model of which is available.
Foreign companies are required to apply to the ministry's concessions bureau for an exploration concession, which is issued jointly with the contract and confers an automatic right for an exploitation concession applied for and awarded after commercial discovery.
Individual exploration concessions may not exceed 1,200 sq km, but there is no limit on the number of concessions a company may hold under a single contract. Exploration concession terms are for 3 years with options to extend additional 3 year terms subject to relinquishment and compliance with license obligations.
Exploitation concessions cover 20 years, although the ministry has the discretion to negotiate special terms such as for coalbed methane development.
Minimum work obligations will be included in contracts. No minimum spending commitments are required, but companies must post a bond payable to the ministry if work obligations are unfulfilled. The bond's face value is reduced in phases as work is performed.
Fiscal terms entail an off the top royalty of 1 0% of gross production. A corporate income tax currently 40% of net income, is payable under depreciation and tax rates applicable to foreign companies doing business in Poland. A special surcharge on after tax net income applies after a company achieves a 20% real after tax rate of return on each exploitation concessions.
Other provisions in the laws and model contract include the right to retain and remit proceeds abroad, international arbitration, training requirements, and a negotiated signature bonus.