Exploration And Production Agreement Meaning
A government can make a concession to a prospector. The concession contract defines certain things. For example, exploration conditions and production agreement rules if successful. A long time ago, a concession meant that the prospector would own the resources on the territory of the concession (the British North Sea) and for a period of sometimes up to 75 years. Over the years, concessions have been less frequent, which has made way for production-sharing agreements, etc. The government wants to generate revenue from the start of exploration. Payments to the government sometimes include a bonus when a contract is signed. This may be a standard bonus, but there are also betting rounds where the highest bidder receives the contract. For example, in 1969, companies spent a total of about $900 million on signature concessions on The Alaska North Slope (Weissler, 2019). It can also be a bonus discovery. A regular but smaller income is derived from concession rents, a levy per hectare or per square kilometre. Since some companies obtain a concession but do not plan to review the concession but resell it, a government may impose spending obligations in the form of a minimum of geophysical expenditures and a minimum number of exploration drilling. In addition, a company cannot remain indefinitely on the original concession area, as there is a mandatory waiver of part of that concession.
In a favourable case, a production license will be issued for discovery. Other rents to pay and sometimes a big bonus when a certain level of production is reached. The host government may also be able to participate in the project. It could, in rare cases, retroactively pay its share of exploration costs. Production Sharing Contract A PSA is an agreement between the parts of a well and a host country regarding the percentage of production each party receives after the participating parties have recovered a certain amount of costs and expenses. It is particularly common in the Middle East and Asia. Although previous systems may have been called PSA, PSA became popular after its introduction in Indonesia in 1960. A PSC/PSA is negotiated either between a multinational and the host country or by offer.
The host country remains the owner of the resource. Some of the oil produced is called “cost oil” and can be sold by the oil company to recover its costs. The rest is “profit oil,” whose recipes are from Govt. and Company (could be in a ratio of 80 to 20%!). As a general rule, there are spending obligations and royalties. One of the best explanations I found: The Production Sharing Agreements: An Economic Analysis by Kirsten Bindemann, 1999. Joint Venture A joint venture between a foreign oil company and a national oil company in the host country.