Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Partnerships in oil and gas production‐sharing contracts

Partnerships in oil and gas production‐sharing contracts In countries with large or potentially large oil and gas deposits, the resource and its extraction tend to become vital cornerstones of the economy. However, uncertainties involved in finding commercial quantities of oil and gas and the intensive capital required for undertaking exploration and production result in significant business risks. The petroleum fiscal systems in many developing countries are now opting for production‐sharing contracts (PSC) as a new model of agreement for the exploration and production of oil and gas resources. This paper extends the principal‐agent theory to foster understanding of partnership between the host government and its foreign contractor in the realm of PSC. The theory highlights the importance of moral hazard and adverse‐selection problems. To avoid these uncertainties and asymmetric information, the principal (national oil company) needs to design an incentive contract that induces the agent (international oil company (IOC)) to undertake actions that will maximise the principal's welfare. Under a PSC, the state has to offer contract terms that are attractive enough for the IOC to enter into an agreement. At the same time, the terms must allow the state to receive maximum economic returns from the venture. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Public Sector Management Emerald Publishing

Partnerships in oil and gas production‐sharing contracts

Loading next page...
 
/lp/emerald-publishing/partnerships-in-oil-and-gas-production-sharing-contracts-JuQlvEIDOJ
Publisher
Emerald Publishing
Copyright
Copyright © 2004 Emerald Group Publishing Limited. All rights reserved.
ISSN
0951-3558
DOI
10.1108/09513550410546606
Publisher site
See Article on Publisher Site

Abstract

In countries with large or potentially large oil and gas deposits, the resource and its extraction tend to become vital cornerstones of the economy. However, uncertainties involved in finding commercial quantities of oil and gas and the intensive capital required for undertaking exploration and production result in significant business risks. The petroleum fiscal systems in many developing countries are now opting for production‐sharing contracts (PSC) as a new model of agreement for the exploration and production of oil and gas resources. This paper extends the principal‐agent theory to foster understanding of partnership between the host government and its foreign contractor in the realm of PSC. The theory highlights the importance of moral hazard and adverse‐selection problems. To avoid these uncertainties and asymmetric information, the principal (national oil company) needs to design an incentive contract that induces the agent (international oil company (IOC)) to undertake actions that will maximise the principal's welfare. Under a PSC, the state has to offer contract terms that are attractive enough for the IOC to enter into an agreement. At the same time, the terms must allow the state to receive maximum economic returns from the venture.

Journal

International Journal of Public Sector ManagementEmerald Publishing

Published: Aug 1, 2004

Keywords: Public sector organizations; Private sector organizations; Partnership; Production management; Contracts

References