Oil Production Sharing Agreement

In a production allocation contract (« CSP »), the host country government gives an oil company (or a group of companies commonly referred to as contracting companies) the right to conduct research in a specific area and, after the discovery of hydrocarbons in that area, the right to produce such discovered resources. The contractor first assumes the risk of finding hydrocarbons and the financial risk of the initiative and ultimately explores, develops and produces the field in accordance with the provisions of the COPS. If successful, the contractor may use the money from oil sales produced after the payment of royalties due to the host government to recover its capital and operating costs, known as « cost oil. » The rest of the money is called « profit oil » and is distributed between the government and the contractor. In some KSPs, changes in international oil prices or the company`s production rate affect the company`s share of production. The objective of Sakhalin-2 PSA was to define the conditions for hydrocarbon exploration, development, production, processing and transport by replacing existing tax and licensing regimes with a contractual agreement that would remain effective for the duration of the project. After Sakhalin-2 PSA, the Russian Federation retains the sovereign ownership of oil and gas deposits and Sakhalin Energy invests the necessary funds for exploration and development. Production-sharing agreements were first used in Bolivia in the early 1950s, although their first implementation was similar to that of today in Indonesia in the 1960s. [1] Today, they are often used in the Middle East and Central Asia. After cost Oil is awarded, the allocation of the remaining production between the parties, known as profit oil, will also be regulated by PSA.

These attributions themselves can often become very complicated under formulas incorporated into the EPI. Once again, there may be tensions, particularly with respect to the level of revenue and benefits available to each party and the date on which these revenues are collected.