Production Sharing Agreements — Practice And Trends

Introduction

Hydrocarbon resources are typically owned by the state. The task of exploring for and developing these resources is often delegated by the state to an international oil company ("IOC") (sometimes acting in conjunction with a nominated domestic participant) that possesses the specialist expertise and financial resources necessary to undertake the task. The relationship between the state and the IOC is regulated by a legal instrument that specifies the rights and obligations of each party. The primary purpose of the instrument is to address the tensions inherent in the relationship between the state and the IOC; in particular, the allocation of risk between the parties and the provision of incentives to the IOC to accomplish the state's objectives.