Advantages And Disadvantages Of Production Sharing Agreement

A concession contract is theoretically based on the American concept of land ownership, in which surface and underground resources belong to the recognized landowner. In a particular concession agreement, the landowner grants another entity or company exclusive rights to explore and hold resources and reserves. This company is responsible for providing the capital and skills needed to explore, extract or produce and process oil or gas deposits. Oil and gas are important finite natural resources that require strong cooperation between rights holders and developers for effective exploration, exploitation, production and processing. Keep in mind that these activities are subject to important government rules. In addition, determining the extent and limits of this cooperation is an important upstream activity within the oil and gas industry. A production-sharing agreement (EPI), also known as the Production Sharing Agreement or CSP, is another type of oil and gas agreement, in particular a kind of contractual system first introduced by Indonesia in 1966. One of the notable drawbacks of an PPE involving a state or a mining rights owner is the complexity that results. This type of oil and gas agreement is very complex and requires a high level of negotiation. An owner must have access to financial and commercial, legal, environmental and technical know-how. The host country, as the owner of hydrocarbons, mandates the IOC as a contractor for exploration and production work, and the IOC bears all costs associated with the exploration and production of hydrocarbons within the geographical area defined in the COPS. If no commercial discoveries are made, these costs will not be recovered by the IOC from the host country. This article lists the types of oil and gas agreements between states or owners of mining rights and developers or suppliers, as well as the pros and cons of each state.

Note that oil and gas agreements are also called licensing systems or tax regimes.