Understanding upstream petroleum agreements—concessions, production sharing contracts and service contracts
Produced in partnership with Joana Kay, Of Counsel in Oil & Gas of Orrick
Understanding upstream petroleum agreements—concessions, production sharing contracts and service contracts

The following Energy guidance note Produced in partnership with Joana Kay, Of Counsel in Oil & Gas of Orrick provides comprehensive and up to date legal information covering:

  • Understanding upstream petroleum agreements—concessions, production sharing contracts and service contracts
  • The purpose and scope of petroleum agreements
  • The history and the evolution of petroleum agreements
  • The risk/reward balance—the differing perspectives of host governments and investors
  • A comparative analysis of petroleum agreements

The purpose and scope of petroleum agreements

In order for a private sector participant (the ‘investor’) to carry out oil and gas exploration and production (‘E&P’) activities on land or sub-sea, the investor will need to obtain the consent of the ultimate owner of the oil and gas, which is usually the host government (where ownership by the state could be received as a matter of constitution, eg Iran, or by statute, eg the UK). This consent typically take one of three forms (although there are many hybrid versions which incorporate elements of more than one of these forms):

  1. a concession (in today's terms, a licence or a lease),

  2. a production sharing contract (a ‘PSC’), or

  3. a service contract

For the purposes of this Practice Note, these arrangements are collectively referred to as ‘petroleum agreements’.

A petroleum agreement establishes the framework for the performance of E&P activities by an investor in a defined area. The petroleum agreement will address a wide range of issues, the most important of which are summarised in the table below. Depending on the nature of the petroleum agreement system which is used in a particular jurisdiction, these issues may be expressed differently, and with a greater or lesser emphasis reflecting the priorities which are most relevant to that jurisdiction.