Types Of Agreement In Oil And Gas
All three types of oil contracts are usually signed between an oil company or consortium and the government. They usually settle the following areas: To search for oil, an authorization is required. It defines the contract between the licensees and the government. Production requires a production license. There are four main types of contracts: the main advantage of this type of oil and gas agreements or tax system is that it is simple. Negotiations are less complex, unlike AED and risky service contracts. Simply put, an owner of state or mining rights is granted a concession because of the simplicity of the agreement. Traditional concession agreements before 1940 were granted to large territories, sometimes to the whole country, for example. B irak. These grants were long-term (50 to 99 years).
The IOC has had all the discretion and control to explore and verify whether or not a particular field can develop. Production-sharing agreements do not confer any ownership rights over oil production on the company or consortium that concludes the agreement. Instead, the company receives a share of the total production. The production balance sheet belongs to the host state. Considering concession agreements as a legacy of imperialist and colonial eras, Indonesia has encouraged and positioned PSA as part of its resource nationalism movement. Subsequently, since the 1960s, PSA has become a privileged type of oil and gas agreements in various countries in Asia and the Caucasus. Keep in mind that the types of oil and gas agreements mentioned above between a country or state and an oil and gas company are also called licensing systems or tax regimes. As a general rule, these systems or regulations are classified as either a concession system or a contractual system. It is clear that all concession agreements are a concession system, while product sharing or product sharing agreements, service contracts and risky service contracts are classified according to a contractual system. Due to the diversity of ownership of oil and gas interests and/or the need to share economic risks, the oil and gas industry has entered into a number of different contractual agreements.
The most common types of contracts are farm outs-farm-ins or commercial well agreements and common enterprise agreements. As in the case of a concession, one of the main advantages of a production-sharing agreement is that the lessor is not obliged to make significant investments. It also means that a PSA can be relatively disadvantageous for a lessor. Finally, under this type of oil and gas agreement, the lessor bears all operational and financial risks. For years, oil and gas companies used mostly production-sharing contracts when working with governments or other companies to explore and develop natural resources.