Advantages Of Production Sharing Agreement

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. Through the CCCs, the host country is able to build new reserves without risk and without limited costs. The host country is not obliged to invest significantly in exploration and production activities. Finally, the IOC bears all operational and financial costs and risks. Summary of the adequacy of production sharing contracts in Sonangol. Are they the best for the oil and gas industry? Should we maintain them? Criteria used by Sonangol to choose the type of contractual agreements it uses 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 related to 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. However, unlike concessions, a PSA does not grant a tenant who owns oil or gas resources and reserves.

Ownership and rights remain in the state. However, this property is largely partial. This is because PSA allocates a portion of oil and gas revenues to exploration, extraction and production costs. Once these costs are covered, the state and the company divide the rest of the income on the basis of the agreed percentage. 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. Resource nationalism is another PSA advantage. Sectors that oppose considerable foreign influence on an economy and control of critical natural resources are willing to enter into a production-sharing agreement because of their inherent nationalist and pro-nationalist characteristics.