TYPES OF OIL AND GAS AGREEMENT
Production Sharing Contracts/Risk Sharing Contracts
This is a kind of contract that creates the greatest distance between the government and oil operators. Under this agreement, the Contractor has exclusive rights to explore, develop, sell, and export oil/gas from a specified area for a fixed period of time. The Company is responsible for all decisions concerning production, although the government may require that a production plan be submitted and approved. Concessions are the oldest and most widely used type of agreement. Examples of countries that adopt this type of agreement include: United States, United Kingdom, Kuwait, Australia.
Under the Joint Venture agreement, the International Oil Companies and the National Oil Companies form a Joint Venture. Each Joint Venture Partner pays/receives its share in proportion to its Participating Interest. The major problem with this type of agreement is its low success rate. It is therefore, less commonly used. Examples of countries that adopt this type of agreement include: Cameroon, Pakistan, Colombia, Netherlands.
Under this agreement, the Contractor works under the Government’s mandate and is paid for its work. Government maintains ownership and Titles of minerals. This type of Agreement is most suitable for Contractor for risk-free operations, and for States having Producing Assets. Examples of countries that adopt this type of agreement include: Iran and Qatar.
PRODUCTION SHARING CONTRACT
In a Production Sharing Contract, the Company is initially responsible for all exploration and development costs. When production begins, the oil is shared between the Company and the Government (or the national oil company). The oil stream is first of all divided into two parts: Cost oil and Profit oil. Examples of countries that adopt this type of agreement include:...
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