Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
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Pt2
On 03/11/2017, FRR announced it had commenced implementation of a program to study commerciality of Block 12 in order to reach conclusion regarding sustainability of commercial production. In the RNS, FRR stated “Pursuant to the terms and provisions of Frontera Resources' production sharing agreement, the Study Program has a 5-year term and it delineates the entire Block 12 as the area where the Study Program will be implemented. Pending completion of the Study Program and notification of respective results, no relinquishment of any part of Block 12 is due for the duration of the Study Program”.
In response the media speculation, FRR released an RNS on 16/04/2018, which reported FRR had received a request for arbitration from GOGC in respect to certain terms of the Product Sharing Contract (PSC). It stated “In respect of potential relinquishment, as announced on 3 November 2017, the Company has commenced implementation of a program to study commerciality of Block 12 (the "Study Program"), in order to reach conclusion regarding sustainability of commercial production. Pursuant to Article 9 of the PSC, the Study Program has a 5-year term and it delineates the entire Block 12 as the area ("Study Area") where the Study Program will be implemented. Under the same Article, pending completion of the Study Program and notification of respective results, no relinquishment of any part of Block 12 is due for the duration of the Study Program. Quoting Article 9.5 of the PSC, in part: "In the event the Contractor [i.e., Frontera] makes a declaration under Article 9.4(c) above, Contractor shall not be obligated to relinquish the relevant Study Area pending the completion of the further work committed under that Article […]."
I presume FRR cited the “Study Program” in the tribunal as the reason it hadn’t relinquished areas that had not been developed for production but this claim must have been unsuccessful. However, assuming the Termination Notice is not going to be implemented, what are the established Development Areas? As FRR have been extracting and selling oil from Taribani it should be included and so should the Mtsarekhevi Gas Complex (MGC) as FRR has been selling gas into Georgia's natural gas distribution grid via the 14-km natural gas pipeline which connects the FRR's natural gas processing facility at MGC. On 14/11/2017, the Ministry of Energy's State Agency of Oil and Gas extended the FRR's natural gas transportation licence until 14/11/2022.
According to FRR, Taribani covers 80 km2 and has 1,033 MMbbl (OOIP) of oil of which 155 MMbbl is recoverable and 4.6 TCF (OGIP) of gas of which 3.2 TCF is recoverable. MGC covers an area of 950 km2 and has 8.3 TCF (OGIP) of gas which 5.8 TCF is recoverable.
This raises the question, does the established Development Area cover the whole of Taribani and MGC or just a portion and, if the latter, on what basis will it be determined? Also, is FRR still producing and selling gas from MGC?
Pt1
In the interview on TV Kavkasia (24/06/20) Zaza said “The Oil and Gas Corporation and the state, which was represented by the Ministry of Economy’s Oil and Gas Agency, had 14 claims against us. Of these 14 requests, 12 counts were not satisfied. Only 2 were satisfied. 1 of these 2 requirements is that the territories where we do not extract oil and gas should be returned to the state”. When asked what percentage of these areas represent, he replied “They try to present it as 99%, but it is unclear how they report it or where it comes from. Anyway, all the areas where we are not doing this work, about 1 month ago, maybe more, 1.5 months ago, we have already returned to the state”. There’s been speculation that this may be more like 1.58% but does the PSA help in any way?
The summary of the Block 12 PSA and mineral licence (from the 2005 Admission and the Placing document issued by Morgan Stanley) stated: “The State may only terminate the Block 12 PSA on ninety days’ notice if Frontera Georgia has committed a material breach of the Block 12 PSA (being a fundamental breach tantamount to a frustration of the Block 12 PSA which may include failure to complete any work programmes approved pursuant to the Block 12 PSA) which is proved at arbitration”.
The PSA stated it has a 25-year term which will expire on 13/11/2022 and included an exploration phase which will expire on 13/11/2012. If commercial production remains possible in relation to any part of Block 12 which is specified in a development area or areas under the PSA, FRR shall be entitled, after the expiration of the PSA, to receive an extension of the term of the PSA and the Mineral Licence regarding such Development Areas for a further period of five years (or the production life of the Development Area if this is shorter). FRR shall relinquish its rights to Block 12 in respect of any area outside of any Development Area at the end of the Exploration Phase. On 16/07/2009, FRR announced it had received an extension to the exploration phase of its PSA from 2012 to 2017.
I think it’s worthwhile to understand why FRR didn’t hand back the B12 areas outside the Development Areas in 2017. On 11/04/2017 FRR filed a Notice of Feasibility of Commercial Production with GOGC in accordance with the terms and provisions of the PSA and FRR noted that this was an important milestone as the Notice is primarily associated with operations targeting the substantial oil bearing Eldari Formation and other related geologic targets.