Concession Agreement Vs Psc

Under the Production Sharing Agreement (PSA) and Service Contract (SC) system, the IOC is designated as a contractor and, in accordance with the concession agreement, it is called a concessionaire. The difference on behalf of the IOC is related to the different role of the IOC in each type of contractual agreement. The service contract is the third basic form of oil exploration and production contracts. It was formulated in Latin America in the 1950s and then in the Middle East in the 1960s. The concept of this type is based on a simple formula where a contractor must pay a cash charge for the supply of the oil and/or gas production service and that all production must be owned by the HC or NOC. Governments normally choose from many contracts to delegate oil and gas exploration and development. The form of the contract changes between and within countries, but the most common contracts are concession contracts and production sharing agreements (EPI). 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. The IOC may be subject to the payment of rental fees for the concession sector. These rental fees may be levied on the exploration period or period of operation, or both.

This did not result in delays, postponements or investments expected immediately. This was clearly contrary to the interests of host governments. Treaties do not provide for waivers of unexplored areas. Other more traditional concession agreements have granted the IOC “in situ” oil, with market and price powers. Royalties were flat or fixed for unit rates and were sometimes credited with income tax. There was no or little signing bonus and sometimes no income tax. These conditions have often been “frozen” for the duration of the agreement. The IOC is designated by the HC or its NOC as an exclusive contractor, but not as a dealer. Since the 1960s, production-sharing contracts (PSKs) have begun to replace concession contracts to become one of the most fundamental forms of the international oil and gas industry.

For example, many commercial departments, legal staff and contract managers in the oil and gas industry are required to learn about CSP and their different characteristics. However, the question that often remains unanswered is what exactly is the difference between these production-sharing contracts and concession contracts. Therefore, in this article, we will try to define what CCCs are before trying to address the differences between CSPs and concession contracts. After deducting the share allocated to the coverage of the IOC costs in accordance with the EPI and likely to differ from one agreement to another, the remaining part of the production is divided between the HC or its NOC and the contractor. This share is the proportion of the contractor`s profits that is subject to the percentage set out in the provisions of the EPI. The equipment, tools and facilities used by the IOC during the duration of the oil concession contract belong to the IOC and may be transferred free of charge to the HC or NOC at the expiry of the concession contract, unless HC or NOC ask the IOC to withdraw them from the territory of the concession agreement. An example of such a control mechanism under the Egyptian oil exploration and development agreement is that during the exploration phases, the contractor is required to develop an exploration program and a budget for the area where the measures it plans to take the following year.

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