Contractual Systems in the Oil and Gas Sector: Current Status and Development

Abstract

Production activities in the oil and gas industry are capital-intensive and associated with high technology, with these assets not always being available to oil-producing countries or national companies. Any form of interaction between the parties involved in natural resource extraction requires clear regulation regarding contractual relationships. This study attempts to analyze Indonesia’s production sharing contract system in order to assess its applicability to other conditions. The article covers the key aspects of contract theory, provides a classification of contractual systems in the oil and gas sector, and discusses the most common types of contractual agreements. It also considers the key principles of production sharing contracts (PSCs), analyzes the development of PSC practices in Indonesia over the past sixty years, and highlights PSC advantages and disadvantages.

Contract Structure of Production Sharing Agreement by International Oil Company in Exploration of Petroleum Resources in Developing Countries

“…For example, under the PSA in Indonesia, when it is discovered that the oil and gas field is sufficient for commercial purposes, the State is responsible for all costs of exploration and production. In the case of Peru, the risk burden in the process of exploration and production is shouldered by the company with a considerable compensation of oil revenue compared to the terms of the contract in Indonesia [8]. Some of these companies are Chevron Pacific Indonesia, Pertamina EP, CNOOC, ExxonMobil Cepu Limited, and Pertamina Hulu Mahakam.…”

“…Furthermore, neither these countries nor their private organizations are endowed with adequate experience and capital for the development of their petroleum resources. This lack of technical expertise and capital in the oil and gas sector among developing countries, as examined in the case of Lebanon, results in brain drain, lack of a pool of scientists and researchers in specific units, inadequate institutional environment, inability to make public investments in relevant research and infrastructure [8] in the face of the long-term, capital-intensive project which includes geological gap [9]. For these reasons, developing countries liaise with International Oil Companies based on an agreed contract structure for the exploration and development of petroleum resources.…”

“…Several studies have provided an in-depth understanding of the economic analysis of production-sharing agreement [8,11,12]. Other studies have also investigated the historical development, changes, and reformation of the PSA, particularly in the case of Indonesia [8]. While Zebaria studied the production-sharing contract in the case of Iraq [13].…”

Bibliometric Analysis of Intelligent Systems for Early Anomaly Detection in Oil and Gas Contracts: Exploring Recent Progress and Challenges

“…The oil and gas industries shape global economies, geopolitics, and life. These industries enable the creation of essential products, services, and companies for developing economies, meeting today's society's requirements [1,2]. Also, they have promoted the design of new technological advances and industrialization during the last century [1,2].…”

Infrastructure of the Iraqi Oil Industry: Status, Path Dependency Issues and New Challenges

“…Поддержание на должном уровне функционирования объектов производственной и транспортной инфраструктуры требует активного участия государства, которое предполагает создание действенных механизмов перераспределения доходов от нефтегазовой ренты [6], в том числе контрактных [7,8], системы налогообложения [9], стимулирующих рациональное использование нефтяных запасов [10], формирование промышленной политики, нацеленной на интенсификацию инновационных процессов [11] для роста регионов минерально-сырьевой специализации [12].…”