The Basis for Conducting Oil and Gas Operations
In Georgia, oil and gas operations and natural hydrogen operations may be carried out wholly or partly by the state and by natural or legal persons on the basis of a contract concluded under the law and of a general licence for the use of oil and gas resources. The right to process oil, to process gas or to transport them belongs to natural and legal persons under the same law. The contract granting an investor the right of exploitation or of use of the oil- and gas-bearing subsoil of an area is concluded between the state and the winner of a tender or auction. The agency determines the rules of the tender and the auction and registers them with the Ministry of Justice one month before their announcement. The winner of a tender is the applicant submitting the most acceptable economic and technical bid, while the winner of an auction is the one offering the state the highest amount.
Procedural Deadlines of the Tender and the Auction
The procedure is governed by several strict deadlines. Negotiations between the agency and the winning investor for the conclusion of the contract begin within one month of the victory in the tender or auction, and if no contract is concluded within six months of the start of the negotiations, the results of the tender are deemed cancelled. To be admitted, the applicant pays a contribution determined by the agency,. Participation also requires extensive information: the forms and parameters of the operations, information on the owners, management, financial standing, financing sources and technical capabilities, and experience.
The Content of the Contract and Risk Service
Any contract between the agency and the investor covers the division of the term into exploration and production periods, the minimum volume of the agreed works, the conditions for the reimbursement of costs and the distribution of production, the method of determining the market price, the ownership of the extracted oil and gas, the status of the operating company, bonuses and taxes, the obligation to relinquish part of the area, the use of associated gas, environmental and safety requirements, and the dispute settlement procedure. The law stresses that the extracted oil and gas are the property of the state and the investor. A special form is the risk service contract: the investor bears all exploration and geological study costs and takes the risk of failure upon itself; in the event of success, the decision on production is taken by the agency; the state reimburses the expended capital with loan interest and an additional tax; reimbursement is normally in money, while by decision of the agency it may be made partly or fully in extracted oil and gas.