The oil and gas industry operates in countries around the world in accordance with a number of types of agreements. These agreements can generally be categorized into one of four categories (or a combination of categories): risk agreements, concessions, production sharing agreements (PSA, also known as production sharing contracts, PSCs) and service contracts. Under concession agreements (or licenses), the selected refining company or consortium conducts exploration activities. The company takes over all of the production, when it is extracted, in return for the payment of a royalty to the host state. Royalties could be in cash or in kind. It could also take the form of a income tax or other types of fees and contributions, possibly including an additional income tax, if it exceeds a pre-defined threshold. This type of contract is called a licence and generally gives the licensee the exclusive right to explore and value oil, own and market production, and own the corresponding equipment and facilities. Participation agreements: the NOC is “carried” by an international oil company (IOC). The NOC weighs on the IOC by not fully compensating the IOC for the risks involved in exploration or for making a commercial discovery. The IOC suffers the total losses and therefore needs greater success to compensate, depending on NOC`s share, in the joint venture.
But the IOC benefits, for example, from the fact that the NOC is treated as a partner in nationalist treats. Concession or licensing agreements have evolved considerably since their introduction in the early 1900s as unilateral treaties, when many resource-rich nations were dependencies, colonies or protectorates of other states or empires. The modern form of such agreements often allows an oil company to explore, develop, sell and export exclusive rights, oil or minerals from a given territory, for a specified period of time. Companies compete by offering offers, often coupled with signing bonuses, to acquire licenses for such rights. This type of agreement is widely used around the world and is used in countries as diverse as Kuwait, Sudan, Angola and Ecuador. 5. The types of upstream oil contracts with traditional state concession contracts prior to 1940 were granted to large areas, sometimes throughout the country, for example. B Iraq. 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. Examples of service agreements adopted and areas covered 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.