Other Sources of Revenues
In addition to royalties, governments can collect other revenues at different phases of the life cycle of oil and gas projects.
Leases
During the exploration phase of an oil and gas project, it is usual for governments to require proponents to pay a set rate for the lease of each unit of land over which they intend to conduct exploration activities. Alternatively, governments can auction exploration rights over certain territories. In both cases, proponents pay to secure the exclusive rights to conduct exploration activities over a piece of land (or sea) for a determined period of time. Depending on the location and size of land (or sea) parcels, the type and market value of natural resources, and general economic circumstances, lease fees and auctions can generate significant revenues for governments.
Licence and permit fees
Through the successive phases of oil and gas projects, project proponents may be required by regulations to obtain a number of licences or permits to conduct specific exploration, production, or decommissioningactivities (a well-drilling licence, for example). A fee may be charged for these licences and permits. However, these fees are usually small and often do not yield significant revenues for governments.
Bonuses
Bonuses are one-time payments made upon the signature of a contract, the launch of activities at a project site, or the achievement of certain goals laid out in regulations or in contracts. Being one-time payments, collecting bonuses does not require as much administrative capabilities as collecting royalties. Bonuses also do not generate as much revenues as royalties. Bonus payments are often negotiated on a case-by-case basis, taking into consideration the characteristics of each project.
Penalties and fines
Leases and licences grant certain rights to project proponents, but they also bestow obligations on them. For example, leaseholders may be required to carry out a minimum amount of work each year on a parcel of land or to hire a minimum number of workers. Penalties (or “cash in lieu”) may apply when these requirements are not met and leases may be rescinded under certain conditions. While such penalties will rarely yield significant revenues for governments, they should be set high enough to effectively deter undesirable behaviour.
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