Sovereign Experience

Primarily in his capacity as President and Executive Director of Gaffney Cline & Associates (GaffneyCline) from 1988 to 2024, Bill Cline has provided assistance to Governments and State Companies, Agencies and Ministries in a significant number of countries. These have included: Argentina, Afghanistan, Aruba, Australia, Brazil, Brunei, Bulgaria, Canada, China, Colombia, Hungary, India, Iraq, Japan, Korea, Kuwait, Lebanon, Malaysia, Mexico, Morocco, Mozambique, Norway, Peru, Romania, Saudi Arabia, Taiwan, Timor Leste, Trinidad and Tobago, Turkmenistan, the U.S. and Venezuela.

From that experience, the following engagements are examples related to petroleum contract development, negotiation, tendering and licensing.

IRAQ (Ministry of Oil)

Bill Cline led the team that has guided and supported the massive expansion of investments and activity in the Republic of Iraq commencing in 2008. These have resulted in more than 40 petroleum contracts between Iraq’s Ministry of Oil and international oil and gas companies involving investment commitments well in excess of US$300 billion. The projects ranged from: “brown field” redevelopments of most of the country’s giant oil fields – Rumaila, West Qurna, Majnoon and Zubair, amongst others, to frontier exploration programs and projects specifically aimed at the development and expansion of the country’s natural gas sector. In addition, several innovative and non-traditional contract models were developed to meet specific goals and conditions. These included the Global Gas Integrated Project with TotalEnergies and the Basra Gas Project with Shell as well as other prospective integrated projects tailored to meet both national objectives as well as the financial requirements of the investors.

BRAZIL (ANP)

After the 1997 legislation was put in place in Brazil to “flexibilize” the Petrobras monopoly and create the Agência Nacional do Petróleo (ANP), a GaffneyCline team led by Bill Cline was awarded a long-term contract to provide advice and counsel to the ANP that continued through the 4th licensing round.

In consultation with the ANP, GaffneyCline first developed a marketing and promotion strategy to provide a transparent bidding process. GaffneyCline was responsible for preparing “road shows” at key industry centers around the world, for advice and guidance on the content and preparation of the technical data packages, the drafting of the tender protocol documents setting out qualification criteria, and organization of the bidding events.

Although draft Concession Agreements had been prepared prior to GaffneyCline’s involvement, GCA was heavily involved in the review, revision, refinement and discussion of the contractual terms and bidding conditions with the international oil companies so that the process and ultimate contract would be stable, consistent with Brazilian legal and public procurement practice as well as competitive and transparent.

BRAZIL (BNDES)

As an additional component of the flexibilization process in Brazil, the government decided to reduce its voting stake in Petrobras to 51%, by disposing of a block of its shares (held through the BNDES). The company already traded a number of its shares on the Brazilian stock market. Along with two major international banks, GaffneyCline was contracted to carry out an evaluation of all the upstream and downstream assets of the company, and prepare a valuation of the shareholding.

This initially involved a GaffneyCline team working inside Petrobras to gather information on the company's upstream properties, and then performing an audit of reserves and potential. Similar exercises were carried out on the refining, distribution, marketing, gas, transportation and petrochemical sectors, from which a large corporate cashflow and earnings model could be built.

Following building of the model, a significant amount of time was spent looking at the key value drivers for the company, comparing the performance and market valuation of the company with its peers, and assessing and rationalizing the likely reasons for difference. Finally, a valuation report was prepared documenting the key issues associated with the valuation. The stock was successfully issued on the New York and other international stock exchanges in August 2000, raising over US$4 billion.

BRAZIL (ANP)

In 2010, GaffneyCline was engaged by the ANP and the Ministry of Finance to value the discoveries and resources in Brazil’s prolific “pre-salt” play. The valuation was a central element in the recapitalization of Petrobras, which at over US$70 billion was the largest financing ever undertaken in any industry. The GaffneyCline valuation team led by Bill Cline comprised geoscientists, petrophysicists, reservoir engineers and facilities and cost engineers as well as petroleum economists and valuation experts.

SAUDI ARABIA (Saudi Aramco)

Between 2000 and 2003 GaffneyCline was engaged by Saudi Aramco to provide advice and support on a number of technical, commercial and financial issues with respect to the Kingdom’s Natural Gas Initiative, including development of the Natural Gas Investment Tax and development of regulations for the management of upstream and midstream regulations allowing participation by IOCs. During 2015 – 2017 GaffneyCline was also involved in the review and revision of the royalty regime ahead of the (then) prospective Saudi Capital Market (Tadawul) listing of SAOC.

COLOMBIA (ANH)

In December 2006 GaffneyCline was engaged by the Agencia Nacional de Hidrocarburos (ANH) to assist the agency to conduct its first multi-block competitive tender for exploration and production licenses in Colombia’s Caribbean Coast: Ronda Caribe 2007. The project entailed all aspects of the licensing process, from planning to execution and completed successfully in September 2007.

GaffneyCline had previously been engaged by the State in the review and reform of the fiscal and contractual regime applying to oil and gas activities which led to major changes to the terms and conditions applying to exploration and production activities and the way the State participated in the sector and resulted in a significant increase in oil and gas activity and investment levels.

MEXICO (PEMEX)

Bill Cline jointly led a team comprised of GaffneyCline experts and international lawyers from Cleary Gottlieb Steen & Hamilton that undertook a multi-year undertaking with Petróleos Mexicanos, Mexico’s national oil company (Pemex) to develop the commercial and contractual framework to facilitate the introduction of private capital into Mexico’s upstream oil and gas sector. This complex assignment requires the integration of technical, commercial, strategic and legal issues into coherent analysis and national-level policy advice.

PERU (PERUPETRO)

GaffneyCline was engaged by Perupetro, S.A., Peru’s national petroleum agency to assess the country’s competition vis-à-vis upstream activities and to propose changes to reposition the country to attract increase, levels of investment and activity. This involved a comprehensive fiscal and contractual review and detailed economic modeling to identify areas where the adjustments to balance between the State private sector were required to restore Peru to competitive status vis-à-vis other countries within and outside of Latin America. GaffneyCline was subsequently engaged to evaluate the effects of Peru’s fiscal regime under then current high price scenarios. The result has been a dramatic increase in activity and investment in Peru.

KUWAIT (Kuwait Oil Company and Kuwait Petroleum Company)

Since 1999 GaffneyCline has been retained by KOC/KPC to provide advice and support on a number of technical, commercial and financial issues including the development of a contractual basis for the involvement of international oil companies in support of upstream and downstream petroleum activities in Kuwait.

TIMOR-LESTE (Prime Ministers Office)

GaffneyCline provided consulting services to the government of the Democratic Republic of Timor-Leste starting in 2002 when the country was founded. The GaffneyCline team provided policy advice and assistance to the petroleum sector in the areas of organizational structure, capacity building, legislation and regulation design, license terms and conditions as well as provided advice with respect to ongoing project development negotiations. This included a number of important features – the establishment of a Petroleum Fund, the inauguration of the LNG project for the Bayu-Undan development (in the Joint Petroleum Development Area with Australia), and the completion of Timor-Leste’s initial petroleum licensing round.

Early petroleum developments and their associated revenues were critical to the economic growth of the country. These developments were located in an area jointly managed with Australia under the terms of a treaty. GaffneyCline was able to bring its extensive experience in working with and advising other countries to develop a series of recommendations tailored to Timor-Leste’s unique set of circumstances.

TRINIDAD AND TOBAGO

A GaffneyCline team led by Bill Cline was engaged by the Ministry of Energy and Energy Industries to develop a master plan for the nation’s natural gas sector. This high profile undertaking included an assessment of the likely future gas supply and an evaluation of the different options for monetizing the gas under a number of scenarios.

The task also included assessing legal, regulatory, and fiscal conditions (including licensing and contracting policy), and assessing where changes or reforms might improve the probability of maximizing the value of the natural gas resource for the overall economic and social development of the country.

VENEZUELA (PDVSA and EPIC)

Between 1989 and 2002 GaffneyCline was retained by Petróleos de Venezuela (PDVSA) in a technical and strategic planning advisory role to assist in its efforts to attract investment from the international investment community to develop its domestic reserves.

GaffneyCline was instrumental in development of both the service contract basis and the exploration joint venture company concession arrangement for the involvement of international oil companies, and was responsible for the planning and marketing of these opportunities. GaffneyCline prepared technical memoranda for promotional purposes, was responsible for preparing tender conditions and protocol, established requirements for a data room and organized and administered the data room.

Industry response to the initiatives developed and taken for the offerings was positive, and resulted in US$245 million in bonus bids for the exploration round, and in excess of US$2,200 million for the Third Round service agreements.

At the high-point of the Venezuelan Apertura, over fifty international oil companies had interests in the country.

Subsequent to the Third Round GaffneyCline continued to work for PDVSA in a number of advisory and due diligence roles associated with managing its partner operations, and in considering new opportunities.

GaffneyCline also carried out a fundamental re-assessment of the fiscal, regulatory and institutional framework governing the petroleum sector. This particular client, through its activities of managing the nation’s open acreage and negotiating agreements for exploration and production on the available land, is the predominant regulatory authority in the country.

This effort, which took place over the course of 9-months, involved the review of fiscal, legislative and institutional structures for the hydrocarbon industry in certain producing countries around the world in order to propose reforms to the NOC.

The institutional review looked at the existing structure and relationship between the NOC and the Ministry. In contemplating reform, consideration was given to the skills available within the country and its institutions, and how these might best be used or re-deployed. Recommendations were made as to how reform could be undertaken.

In reviewing the fiscal regimes of other countries, GaffneyCline examined the strengths and weaknesses of each regime in a benchmarking exercise, which analyzed how economic rent was extracted, whether sector activity was encouraged or discouraged, and if rational decision-making was fostered. Illustrative cashflow analyses were prepared to demonstrate the relative values of the various options.

During the course of this project, GaffneyCline arranged for visits and accompanied the client to other significant producing countries. These personal meetings with authorities in the regulatory and tax sectors enabled our client to obtain an understanding of the experience of these jurisdictions in regulatory affairs.

Not all of the focus was on the upstream sector. In addition to the impact of exploration and production on the value chain in the hydrocarbon sector, regulatory controls were examined in the areas of transportation from the wellhead, pipeline access and common carrier issues, together with the impact of subsidies and controls in the domestic market.

ARGENTINA

GaffneyCline played a key strategic role in the privatization process undertaken in Argentina with the national oil company, YPF S.A. Work comprised four key stages; planning the restructuring, executing the restructuring, privatizing YPF and working to assist in implementing the post-privatization plans. GaffneyCline acted as the technical and strategic planning advisor to the group (the Sub-Secretariat for Energy) charged with the restructuring and transformation plan.

Work in the first phase including the audit and certification of 4-years of oil and gas reserves, and ensuring compliance with U.S. SEC standards. This required the establishment of cost centers, the development of standards for cost allocation and evaluating a mechanism for product pricing required by the forthcoming deregulation.

During the restructuring itself, GaffneyCline worked with the investment bankers in the sale of YPF’s interest in the four major producing fields and other large economic units. This entailed evaluation of the areas to be sold, advising as to minimum acceptable bid levels and organization of data/prospectus information.

Following restructuring, GaffneyCline assisted the bankers in the actual privatization process. The main objective was to create a well-functioning and profit-making company with a bright future so that its stock offering might generate optimal levels of interest. The process culminated in a strikingly successful, simultaneous IPO made on the New York Stock Exchange and the Buenos Aires Bolsa de Valores, valuing the company in excess of US$7 billion.

ROMANIA

In a project funded in part by the World Bank and the U.S. Agency for International Development (USAID), a GaffneyCline team led by Bill Cline provided consulting services to the Government of Romania as part of the Romanian Petroleum Sector Rehabilitation Project. In this effort, GaffneyCline provided advice and technical support in the following broad categories:

  • Restructuring roles and responsibilities of companies in the various sectors
  • Creation of the independent regulatory agency and definition of limits of authority
  • Definition of contract terms
  • Gas sector rule making
  • Oil sector rule making

During the course of the project, GaffneyCline was a leader in the establishment of the independent licensing agency now known as the National Agency for Mineral Resources (NAMR), the development of model-form contracts (for exploration and production activities, as well as field rehabilitation projects), and the development of a suitable hydrocarbons law and petroleum code.

In addition, a comprehensive, grass-roots level development of a Production Sharing Contract, appropriate to Romania’s needs and resource prospectivity, was conducted. GaffneyCline developed a strategy for targeting those companies most qualified and suitable for investing in Romania and outlined a packaging and promotion strategy. This included issues such as determining optimum block size, developing tender protocols, and recommending the basis for competitive bidding. Numerous alternative contract forms were assessed in order to develop a model best suited to Romania that would maximize economic rent accruing to the state, lower the minimum economic field size, and be attractive to the segments of the international industry that were targeted.

GaffneyCline also played a critical role in restructuring the fundamental premises within the oil and gas sector, including basic decision-making methods and parameters, appropriate handling (allocation and measurement) of costs, and rational pricing of goods, services and products. In the gas sector, this included providing specialized input on carriage provisions, access rights, tariff principles, and recommendations regarding establishment of an independent regulatory agency to govern gas sector issues.

In addition, GaffneyCline conducted a two-week training course to prepare NAMR to model and negotiate petroleum contracts with the IOC’s. These included considerations of various economic tools, concepts and valuation techniques, as well as negotiation simulation exercises.

BULGARIA

The primary objective of the Bulgarian section of the USAID Regional Energy Efficiency Project was to review the existing mineral and petroleum legal framework in Bulgaria and to recommend appropriate petroleum law and model contract revisions in order to attract additional foreign capital investment into the sector. Advice was provided in respect to negotiations with certain existing license holders, as well as on issues concerning remaining contractual rights and obligations. Other contracts entered into by the State were examined in order to assess their status and potential effect on the second round of licensing. The scope of work included recommended restructuring of the way the company’s mineral and hydrocarbon licensing was conducted in order to broaden the area’s appeal.

HUNGARY

GaffneyCline provided counsel to the government in respect of developing the optimal form of a production sharing and concession agreement, as well as a strategy for presenting and promoting the country to the international industry. This was an interactive and iterative process where the State was presented with a series of options (and pros and cons of each) so that the end result was a strategy and structure the State became comfortable and intimately familiar with because of the involvement in the entire strategy and contract development process.

ARUBA

Upon the recommendation of the Netherlands Government, GaffneyCline was commissioned to assist the Government of Aruba in re-defining its hydrocarbon policy in the aftermath of the closure of the Esso refinery and transshipment facility. The various dimensions of this work included:

  • Advice on negotiations related to the future of the refinery
  • Formulation of a petroleum policy in the country
  • Drafting petroleum legislation
  • Design and formulation of a production sharing agreement
  • Promotion of petroleum exploration licenses in the offshore area
  • Formation of the regulatory agency - the Directorate of Hydrocarbons
  • Formation of the national oil company

In this effort, benchmarking of the attributes, authority, responsibility and control of similar agencies in various countries was also undertaken. Based on this review, GaffneyCline presented a set of recommendations, which were later adopted by the Government of Aruba. Once the framework conditions were established, GaffneyCline worked together with the Arubans and the newly-created national oil company, and successfully completed Aruba’s first exploration licensing round. This activity included industry presentations, company prequalification and evaluation of the bids.

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