Turkey: Turkey's New Petroleum Law

Last Updated: 23 September 2013
Article by Nina Howell

Turkey enacted a new Petroleum Law in June to help attract international investment in its offshore oil and gas resources in the manner currently being experienced in neighbouring Cyprus, Israel and Lebanon. Nina Howell, counsel in King & Spalding's London office, discusses the new law amid growing interest in the east Mediterranean.

The Levant Basin, a deep marine basin in the east Mediterranean between Cyprus, Israel, Lebanon and the Palestinian Territories, has historically been overlooked as an area for hydrocarbons. But recent gas discoveries in the region have changed that perception, and interest among gas players is growing. In 2010 the US Geological Survey suggested that the basin may hold up to 3.5 trillion cubic metres of natural gas.

Update on the east Mediterranean

Israel

In May, Noble Energy unveiled a natural gas discovery at the Karish prospect in Israel, with estimated gross resources of between 1.6 and 2 trillion cubic feet (Tcf ).

Israel has already seen discoveries in the Leviathan and Tamar fields in recent years. These discoveries led the government of Israel to review its hydrocarbons laws and publish new regulations and guidelines in 2010 and 2011. The new regulations enhance the legal regime under the Petroleum Act 1952 relating to exploration and production, marketing and distribution of oil and gas and taxation of hydrocarbons.

Lebanon

Lebanon opened its first international tender for offshore gas exploration in 2013. Gebran Bassil, Lebanon's energy minister, has predicted gas reserves of up to 30 Tcf in Lebanon's territorial waters. Exxon Mobil, Chevron, and the National Iranian Drilling Corporation are among the 52 international energy companies submitting applications to participate in the first offshore gas round.

In anticipation of the opening up its hydrocarbons sector to foreign investment, Lebanon introduced the Offshore Petroleum Resources Law and Petroleum Activities Regulations in 2010. Amongst other things, the new law introduced a new petroleum administration body and allowed the Lebanese government to issue licences to any joint stock company wishing to partake in petroleum activities, subject to entering into an exploration and production agreement with the government.

Cyprus

In Cyprus, Noble Energy also discovered large gas reserves in Block 12 in late 2011 under a production-sharing contract (PSC) awarded under the Cypriot government's first licensing round. Noble and its partners in Block 12 propose to develop an LNG plant, which will be the first LNG export project in the EU, to monetise gas produced in Block 12

As an EU member state, Cyprus is subject to EU laws applying to the hydrocarbons sector. Although the domestic oil and gas laws of Cyprus provide an overarching legal and regulatory framework, a substantial amount of detail is likely to be required for Cyprus to develop as an exporter of hydrocarbons.

Earlier this year the Cypriot government also concluded its second licensing round. After successful negotiations with the Council of Ministers, a consortium between Italy's Eni and Korea's Kogas signed three PSCs (in relation to Blocks 2, 3 and 9) offshore Cyprus, and Total signed two PSCs (in relation to Blocks 10 and 11). The PSCs are based on a new model form production-sharing contract published by the Cypriot government in 2012.

It is no surprise that expectations for discovery – and ultimately export – are growing. The potential to provide the EU with a stable energy supply is an attractive proposition and could hand the east Mediterranean countries billions of dollars in revenue, which in the case of Cyprus in particular would be a major boost to its economy.

Turkey's approach

As a result of the discoveries, competition among these east Mediterranean neighbours to become the latest regional energy hub has suddenly intensified. This scenario has given one of the Mediterranean's main emerging economic powers, Turkey, reason to review its own approach to the regional oil and gas market.

On a political level, tensions still remain between Turkey and its neighbours, especially in relation to the sovereignty of Cyprus. There have already been skirmishes between the Turkish and Cypriot governments over the locations of drilling. On a practical level though, Turkey desperately needs to increase domestic production and reduce its dependence on imports.

According to the International Energy Association, Turkey produced just 44,900 barrels per day of oil against a demand of 670,300 barrels per day in 2012; an import dependency rate of 93.3 per cent.

The situation with natural gas is even worse with just 632 million cubic metres per year of production against 45 billion cubic metres per year of demand; a 98.6 per cent dependency rate.

Turkey, however, remains pivotal for the international gas market despite its lack of domestic production. The country is the meeting point for Russian and Middle Eastern resources and the key European wholesale markets. It is a hub for key pipelines, notably the Blue Stream gas pipeline from Russia, the Baku-Tbilisi-Ceyhan oil pipeline from Azerbaijan and the Kirkuk-Ceyhan oil pipeline from Iraq.

The Turkish government, largely in response to the recent large gas discoveries in neighbouring Israel and Cyprus, has stated it plans to increase exploration in its territorial waters. The government recognised that the previous Petroleum Law 1954 was perceived to pose a number of obstacles to foreign investment and would need to be updated in order to attract investment from outside Turkey.

Indeed, the current Turkish government, led by the Justice and Development Party, attempted to overhaul the law with new legislation in 2007, but certain provisions proved controversial so it was ultimately vetoed.

However, a new draft Petroleum Law was presented to the Turkish parliament for approval on 21 December 2012. It was adopted by the Parliamentary Commission on Industry, Trade, Energy, Natural Resources and Information Technology in March 2013 and was officially passed into law on 11 June.

Turkey's new Petroleum Law

The new legislation aims to remove the hurdles to attracting foreign investment. The old system that separated the country into 18 differing geographical regions has been replaced by a much simpler onshore and offshore regime, with the latter sub-divided into territorial and non-territorial waters.

The preferential rights of the national oil company, Turkish Petroleum Corporation (TPAO), under the 1954 Petroleum Law have been removed. TPAO will now compete in future licensing rounds on the same terms as other companies, thereby leveling the playing field for foreign investors. The change also paves the way for TPAO to be privatised.

While Turkey has historically welcomed international entrants, only a limited amount of the majors have so far invested substantially in the country. Last year, for example, TPAO teamed-up with Shell to begin exploring for shale gas. TPAO has also entered joint undertakings in Turkey with other foreign entities, such as NV Turkse Perenco, Thrace Basin Natural Gas Corporation, Amity Oil International and Foinavon Energy.

The Turkish government has also made the permit and licensing regime more attractive. Companies can now be issued with a "search permit" to collect geological and geophysical data. The search companies will be able sell the data collected under the permit to interested parties for a period of eight years. Multiples search permits can be issued for a single field.

Exploration licences can be granted for up to 56,000 hectares for onshore and territorial waters and 1 million hectares for non-territorial waters. The Turkish government has also increased the duration of a licence. Onshore licences are now granted for five years (rather than four) and eight years (rather than six) for territorial waters. These licences can be extended by two and three years respectively.

Operation licences of 20 years will be issued if petroleum is discovered during the exploration phase. These can be extended by a further 10 years on two further occasions. Between 35 per cent (onshore) and 45 per cent (offshore) of the petroleum produced can be exported.

The new Petroleum Law seeks to prevent companies acquiring licences solely for the potential to sell on without making an investment in exploration activities. It requires an applicant for an exploration licence to provide a bond equal to 2 per cent of the financial commitment in the work plan in the licence application. A reduced rate of 1 percent applies to offshore exploration where the financial investment is expected to be higher. The requirement to post a bond is intended to ensure that only investors with the requisite financial and technical capability apply for exploration licences.

There are also fiscal incentives for investors. The new Petroleum Law reduces the ceiling for income tax from 55 per cent to 40 per cent. In addition, companies are exempt from customs duty, levies and stamp tax for equipment imported and supplied locally. Barriers on repatriation of registered capital have also been removed.

Under the new Petroleum Law, the government's share in oil and gas payable as a royalty (in cash or in kind), remains unchanged at 12.5 per cent. The government of Turkey considers it to be a reasonable "take" and comparable to other oil-producing countries. Some commentators have remarked that lowering the government share could provide a further incentive to foreign investors.

However, the calculation of the royalty has changed. The old regime was based on the well head price (i.e. the unregulated wholesale price at the point of production).

For oil, the new law states that the calculation shall be based on the market price of domestic crude petroleum per barrel, as arranged in article 10 of the Petroleum Market Law (the law was dated 4 December 2003 and numbered 5015) for crude petroleum produced on the basis of one petroleum unit.

In terms of natural gas, the calculation is based on the selling price to distribution companies.

Finally, the new Petroleum Law is intended to bring Turkey's petroleum regulation in line with EU Law. Turkey is a candidate for full membership in the EU, although discussions regarding Turkey's accession have been beset by a number of domestic and external problems.

In 2007, Turkey stated its intent to comply with EU law by 2013. The new Petroleum Law aims to harmonise Turkey's petroleum legislation with EU laws in order to help facilitate Turkey's accession.

This article was first published in the Global Energy Review online news, 6 August 2013.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions