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Advantages and Disadvantages of Service Contracts and Production Sharing Contracts - Essay Example

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The ever increasing trend in the oil prices over the past several years enables the companies / individual investors to make hay while the sun shines.his has attracted many investors to shift their business into the profitable venture of oil and gas. …
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Advantages and Disadvantages of Service Contracts and Production Sharing Contracts
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Download file to see previous pages In many countries where oil and gas are being produced, made abrupt and unilateral changes in the already executed agreements. This unilateral change at the end of oil and gas producing countries hit hard the investors. This would definitely shake the confidence of the investors who invested a lot of money in oil and gas projects. The governments of Venezuela and Bolivia have gone to the extent of breaking the contracts or termination of licenses at their own sweet will. This move can be branded as “resource nationalization”. To lessen the negative impact on the profitability of the investing companies, the sovereign governments of Canada, UK and the USA have proposed compensation in terms of further extension of their contracts on soft terms to address this issue1. To safeguard the interest of the investor companies came from abroad, the effective legislation is necessary to mitigate the risks associated with it. However, the legislation in this respect varies from country to country. This does not only effectively take care of the interest of the host countries but the interest of the investors those who are in the run. ...
On the other hand, the state in return will receive royalty payments, income tax and other liveable taxes on the oil and gas producing companies. Contrary to that as per PSC the government will be the owner of all oils and gas productions, and the IOC will act as technical and financial services provider to take care of oil exploration and the development of oil wells / gas fields. Alternatively production will be shared between IOCs and the State in line with the provisions of PSC3. In the developing dominions, PSC system is an effective tool to access oil and gas exploration as well as development of oil wells. As per Johnston view, this access dependable on the political system of that country. As far as functional and financial considerations, the PSC system is more or less at par with concessionary system. The only difference between the two is the management control and its effective implementation4. Upstream Oil & Gas Agreements Overview Upstream agreements in fact create and establish legal business entity and working relationship between the sovereign government and the individual who owns land of exploration for oil and gas. The agreement is a legal document where rights and obligations of the stakeholders are clearly defined, leaving no ambiguity5. In the developed countries like USA, Canada and the UK where two forms of agreements are in existence. One is for the execution of individual land owner for exploration of oil and gas, the other one between the host government and the investor. The agreement executed between the host country and the investment company is called “Concession Agreement and the Production Sharing Contract” 6. In other words the ...Download file to see next pagesRead More
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