Production Sharing Contracts

The following Energy practice note provides comprehensive and up to date legal information covering:

  • Production Sharing Contracts
  • Introduction
  • The key provisions in a PSC
  • Parties
  • Term and termination
  • Minimum work programme and expenditure obligations and relinquishments
  • Conduct of work
  • Discovery, appraisal and declaration of commerciality
  • Fiscal terms: cost recovery, profit shares and other payments
  • Domestic market obligations
  • More...

Production Sharing Contracts

Introduction

A production sharing contract (PSC) is a contractual relationship between a host government and a private sector participant (‘investor’) whereby the government contracts with the investor to carry out oil and gas exploration and production activities (E&P activities) in a defined area for a defined period of time. A PSC is distinguished from the other types of upstream petroleum agreement by the fact that the host government always remains the owner of the oil and gas resources in the ground, although title to a share of the produced oil and gas is transferred to the investor at a contractually agreed 'delivery point' to compensate the investor for the E&P activities it has undertaken.

For more information on the different types of upstream petroleum agreements, see Practice Note: Understanding upstream petroleum agreements—concessions, production sharing contracts and service contracts.

The key provisions in a PSC

Each jurisdiction that adopts a PSC as the basis for its upstream petroleum agreement will design its PSC in its own particular way. Common provisions include:

  1. purpose and scope

  2. responsibilities and grant of rights

  3. term and termination

  4. minimum work programme and expenditures

  5. contract area and relinquishment

  6. annual work programmes and budget

  7. operator and management committee

  8. discovery, appraisal and development

  9. natural gas

  10. recovery of costs and expenses and production sharing

  11. measurement and valuation of petroleum

  12. annual charges, taxation and royalty

  13. lifting, marketing and

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