What Is A Petroleum Concession Agreement

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All three types of oil contracts are usually signed between an oil company or consortium and the government. They generally settle the following areas: these three types of agreements are explained in the following sections. Service contracts. Under this regime, the government provides venture capital for oil exploration and production. The contractor is content to provide the prescribed benefits and will receive a flat fee, whether or not there is discovery. This treaty is very appropriate for oil-producing countries with very high oil resources and are therefore very inclined to commercial discovery such as Saudi Arabia, Kuwait, Qatar, Bahrain and Abu Dhabi. Unlike risky service contracts, the company also acquires an interest in the resource acquired under the basic services contracts. The modern concession system appears to be much more dynamic and flexible in terms of the differences between the prospects and interests of the contracting parties. At least concessions are made only under conditions that require states to submit to peer review, i.e. collective self-control of states. Peer review is also the main mechanism for monitoring the implementation of commitments under international environmental regimes, which is also largely national. Peer review can take the form of a regular accountability for national actions and progress. The actual on-the-spot checks carried out by international agencies or their staff remain exceptional.

During grounding, inspections such as that of the International Atomic Energy Agency can only be carried out with the agreement of the state visited (a tribute to the principle of sovereignty that still prevails). The production allocation agreement (“PSA”) is a form of agreement under which the state retains ownership of the resources, but allows foreign companies to manage and exploit the development of the oil field, which is to negotiate an incentive system. In an PPE, an oil company presents most of the financial risks associated with exploration and development, with the state also facing some risk. Often, the national oil company joins the consortium as a shareholder of PSA and brings part of its profits as equity capital to the consortium that develops the territory granted under PSA. Often, the host government has “supported” the cost of its initial contribution by other companies. These incurred costs will be returned to companies on the future profits of the host government under PSA. If the government refuses to contribute to social capital, oil companies try to negotiate a larger share. The exact division is the result of bitter negotiations, because there are no scientific determinants as to what should be a reasonable division.

The financial conditions of the EPI are similar to those of the licensing agreement, although the different structures may yield different commercial results. The host government often deserves a signing bonus, although it is regularly waived or negotiated for a greater share of future profits. The oil company is first entitled to cover costs for both day-to-day operating expenses, expenses for the year in which they were acquired, materials consumed or consumed, and investments – expenses for assets such as buildings, equipment and computers that have a longer lifespan. Coverage of the costs of current expenses occurs directly during the year in which expenditures are made and coverage of capital investment costs is spread over several years. There are areas of uncertainty in which accountants can reasonably reach different conclusions as to whether certain items, such as books and tools, should represent operating expenses or the cost of capital. The balance of the year`s profit after the repayment of the company`s operating expenses and capital investments, as depreciated this year, will then be shared

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