Production Sharing Agreements Versus Concession Contracts

The IOC owns all production and can dispose of it freely, subject to the obligation to pay royalties and, if necessary, to comply with the requirements of the local market. The IOC has the exclusive right to explore the agreed area and, after commercial discovery, has the exclusive right to use the production. Exploration and valuation are carried out at the IOC`s expense and are granted for a specified period of time. Since the 1960s, production-sharing contracts (PSKs) have begun to replace concession contracts to become one of the most fundamental forms of the international oil and gas industry. For example, many commercial departments, legal staff and contract managers in the oil and gas industry are required to learn about CSP and their different characteristics. However, the question that often remains unanswered is what exactly is the difference between these production-sharing contracts and concession contracts. Therefore, in this article, we will try to define what CCCs are before trying to address the differences between CSPs and concession contracts. Depending on the type of concession, the IOC owns all the oil produced from the territory of the agreement, with the exception of the ioc`s share of the licence to be paid to the HC or NOC. However, HC still owns the oil until the drilling site before production. After deducting the share allocated to the coverage of the IOC costs in accordance with the EPI and likely to differ from one agreement to another, the remaining part of the production is divided between the HC or its NOC and the contractor. This share is the proportion of the contractor`s profits that is subject to the percentage set out in the provisions of the EPI. Under the concession contract, the IOC is a concessionaire, while the IOC is a contractor according to PSA.

For the purposes of this practical note, these agreements are collectively referred to as “oil agreements.” The SC for oil exploration and/or production is now called the Risk Service Contract (RSC). In such a contract, the HC or its NOC recruits the IOC, which has the technology and financial skills as a contractor to perform exploration, development and production services in a given area for a specified period of time. After repayment, the IOC may acquire a certain share of production at a reduced price (purchase contract). a concession (under current conditions, a licence or lease), concluding, with these differences in the contractual terms of the PSCs compared to the concession contracts traditionally used, it is important that anyone interested in acquiring an overview of the legal environment of the oil and gas industry become familiar with that of PSC. This is because not only are CSPs gaining market power, but there are now certain clauses in the CCCs that are being amended, such as cost hedging and the merits of assets that may affect the operation of the business.