merits of different IPA

Contents
Introduction
History of Contracts
Concession Agreement
Production Sharing Contract
Joint Venture
Service Contract
Conclusion

Introduction
There is no consistent approach to the establishment or implementation of international agreements/fiscal systems.
Each country establishes the type of agreements/fiscal systems those best meet their sovereign need.
Petroleum is strategic material so the understanding of agreements/fiscal systems for Int’l E&P is very important.

History of Contract
Concession is originated from the E&P of
petroleum in developing countries by
international oil companies, dated from
late of 19th century-under political control of European power.
Production sharing contract was first
employed by Indonesian GOE and a
foreign oil company in 1966-under
antipathy of people for foreign company
and desire to control its national resources.

History of Contracts
Service Contract was first introduced by
Argentine government(YPF) between 195
and 1961 in three types : drilling,
development, exploration/development-
financially unstable to obtain most
advanced technology.
Joint venture is introduced by Italian GOE,ENI and Egyptian and Iranian GOE in 1957-to participate in managerial decision.

Concession Agreement
Concession Agreement(Royalty/Tax)grants the ownership of petroleum.
Traditional concession is simple agreementconsisted of only royalty(12.5%) paymentbased on the tonnage of crude oil
produced in very large area with
unreasonably long period (50-60yrs).

Concession Agreement
Modern Concession grants a fixed period
(exploration:3-5yrs, exploitation:30-40yrs)
and area and government revenue is
deprived mainly from royalties(11.5-14.5%) and net income or taxes.

Production Sharing Contract
PSC doesn’t grant ownership, only grant
right to receive a share of production or
revenues from the sale of oil and gas.
In PSC, government revenue is composed of Government profit oil and Taxes.

Joint Venture
Joint venture involves joint ownership of
assets and concession rights, a sharing of certain costs of operation, and net
revenues.
In joint venture, the private company is
always designated as the operator, but
GOE usually participate in management
through a joint management committee, approves work program and budget.

Joint Venture
Joint venture is not only contracted
between company and government but also company to company.
Joint venture can be found in Concession
and PSC.

Service Contract
Service contract is one under which a private
company agrees to perform certain specified
services for the government or a GOE in return
for fixed payment(pure service, Technical ServiceAgreement, which have money but lack of the technical know-how) or probable profits(risk
service).
The difference between service and PSC is nature of payment-Cash or Crude.

Conclusion
Concession agreement is generally used
by the countries those are non producer and new comer in oil industry and want to encourage foreign investment in the
development of their oil resources. So
government grant ownership and make
terms attractive to the investor.

Conclusion
PSC is generally used by the countries
whose people is very hostile to foreign
companies (formerly ruled by other
countries) and want to participate more
actively in E&P, refinery, marketing and
distribution.
Service contract is same as PSC except the fee is paid by cash.

Conclusion
Joint Venture is used by who want spread risk or short of capital and used in both
concession and PSC.
There is no superiority of contracts
actually. The most important factor to
determine the economic success is the
structure of fiscal system(royalty, tax, costrecovery, etc) and the flexibility(ex. slidingscale, R factor) is becoming standard and beneficial to the host government and
contractors.