Advantages Of Production Sharing Agreement

A concession contract is theoretically based on the American concept of land ownership, in which surface and underground resources belong to the recognized landowner. In a particular concession agreement, the landowner grants another entity or company exclusive rights to explore and hold resources and reserves. This company is responsible for providing the capital and skills needed to explore, extract or produce and process oil or gas deposits. Resource nationalism is another PSA advantage. Sectors that oppose considerable foreign influence on an economy and control of critical natural resources are willing to enter into a production-sharing agreement because of their inherent nationalist and pro-nationalist characteristics. Like an EPI and unlike a concession, a service contract or service contract is another type of contract system that does not give a affected oil company ownership of oil or gas resources and reserves. However, unlike an EPI, the company concerned is not a leasing taker, but a simple service contractor who is not entitled to the economic benefits of oil or gas extraction. As in the case of a concession, one of the main advantages of a production-sharing agreement is that the lessor is not obliged to make significant investments. It also means that a PSA can be relatively disadvantageous for a lessor.

Finally, under this type of oil and gas agreement, the lessor bears all operational and financial risks. However, THE COPS have the drawbacks, such as the complexity of the letter of these agreements. Many key factors need to be agreed upon before signing. Because a small number of exploration efforts lead to commercial discovery, commitment to work and financial commitments are key bargaining factors as they define the magnitude of exploration risk. The host country will want to design them with as much specificity as possible, while the IOC prefers commitments that allow maximum discretion. Considering concession agreements as a legacy of imperialist and colonial eras, Indonesia has encouraged and positioned PSA as part of its resource nationalism movement.