Production Sharing Agreement Vs Service Contract

April 11, 2021  |  Uncategorized  |  Share

Oil-sharing agreements (IPIs) are among the most common types of contractual agreements for oil exploration and development. As part of an EPI, the State, as the owner of mineral resources, assigns a foreign oil company (FOC), as a contractor, to provide technical and financial services for exploration and development activities. The state is traditionally represented by the government or one of its agencies, such as the national oil company (NOC). The FOC acquires a right to a certain share of the oil produced as a reward for the risk received and the services provided. However, the state still owns the oil produced, subject to the contractor`s right to its share of production. The government or its NOC generally has the opportunity to participate in different aspects of the exploration and development process. In addition, IPEs often provide for the creation of a single committee that brings the two parties together and oversees operations. Pure Service ContractsA service contract is a contract between a contractor and a host government that generally covers a defined technical service that must be provided or concluded for a certain period of time. The investment of the service company is generally limited to the value of the equipment, tools and personnel used to perform the service. In most cases, the reimbursement of the service contractor is determined by the terms of the contract, with little consideration given to project performance or market factors.

Payment for services is usually based on daily or hourly rates, a turnkey fixed rate or other specified amount. Payments can be made at specified intervals or after the service is completed. Based on our understanding and decades of experience in the oil and gas industry, our oil and gas team provides all the commercial, financial and technical services necessary to conclude this agreement. Joint Ventures (Operating) AgreementChade the combination of two or more companies, private or public companies or a combination of private and public companies, can be referred to as a joint venture (“JV”). Typically, a joint venture consists of contractors and a national oil company (NOC). In addition, the underlying contract is considered to be essentially an EPI awarded by the government to the contractor.