Two offshore areas totalling almost 18,000 square kilometres have been awarded to Heritage Oil International Malta Limited for the exploration and production of oil and gas.
Resources Minister Ninu Zammit said during the signing of an agreement yesterday that the offshore areas were granted to Heritage were numbers two and seven located to the south and south-east of the island.
Both areas were previously held by the Norwegian company TGS Nopec under an Exploration Study Agreement. The new 30-year contract with Heritage is a production sharing contract.
Heritage Oil and Gas CEO Terry Buckingham said the company will be conducting seismic surveys next year and start drilling in 2009.
The principal financial obligations of Heritage under the contract are a signature bonus of $2 million to be paid to the government on the signing of the contract, an expenditure of at least $22 million in the first three years of the contract, annual rentals on a rising scale payable to the government starting at $240,000 a year, an annual administration fee of $100,000 and annual scholarship and training contributions of $100,000.
The first six years of the contract are allocated for exploration and the rest for development and production should oil and/or gas be discovered in commercial quantities.
If petroleum is discovered, the company is bound to produce it as efficiently as possible in line with good oilfield practice. Heritage would retain part of the petroleum produced to recover its costs and the remaining part of production would be shared on a pre-agreed scale between the company and the government. On that part of profit petroleum allocated to the company as a reward for the risk taken, a 35 per cent income tax would be payable to the government. The government's net take will be about 64 per cent.
Mr Zammit said that, should oil be struck, the company would, after appraising such a discovery, prepare a development plan for the government's approval.
Such a plan would consist mainly of technical and engineering plans for development, a detailed economic, social and environmental impact study and a study on the government's needs to develop and improve its capacity to monitor, supervise and carry out development and production-related activities.
An advisory committee will now be set up between the government and the oil company to act as a forum to expedite the execution of exploration, development and production programmes.
A budget will be prepared by the company so that offshore installations would be dismantled and removed if these were no longer required for oil production in order to ensure safety of navigation and to minimise damage to the environment. The contract also includes major environmental safeguards.
There are also provisions for reference to experts and an arbitration tribunal for dispute resolution. This being a Maltese contract, Maltese law is applicable.
Heritage Oil Malta Ltd is a subsidiary of the Canadian oil and gas company Heritage Corporation with its head office in Calgary, European headquarters in Lugano and a technical services office in London.
The company has operations in several parts of the world including Russia, Uganda, Iraq, Oman, Pakistan, Mali and the Democratic Republic of Congo.
Mr Zammit signed the contract on behalf of the government.