Evaluating Performance of Production Sharing Contract and Concessionary System: An Overview and Assessment Based on Examples from Selected Countries

Abstract

Exploration and production of hydrocarbons in different regions is controlled by regulatory system which is classified in to concessionary and contractual system. The contractual system is further divided in to production sharing and service contracts. Generally, any fiscal system is designed to facilitate maximum benefit to the host government keeping in mind risk taken by the operator in discovering and developing the resources to provide them profitability in oil price dynamics.Main objective of present study is to take an overview of the fiscal systems in operation all over the globe, their comparison based on salient points focussing on advantages and disadvantages of each and finally their quantitative assessment carried out on four geographic regions, namely India, Brazil, Nigeria and Norway. These examples are taken specifically considering their resources, regularity framework, andefficiency.It is seen that the concessionary system is adopted by countries with higher potential for production and thus examples were taken from areas where working condition is difficult and environment is harsh. The production sharing contract is a reasonably common fiscal system known for intricacy in the sharing of production and tax structure. Quantitative analysis of these systems is attempted here for India, Brazil, Nigeria and Norway. The assessment was based on parameters given in the fiscal terms of selected countries with uniform production and variable cost estimation. Four different oil price scenarios including one scenario based on cyclicity of oil price were considered for comparison. NPV for operators and proportional share with government were calculated (three different scenario) and possible reasons for the variation are discussed.

Keywords:Fiscal system, production sharing, royalty, tax, oil price, NPV

Cite this Article

Jadhav PB, Kshirsagar LK. Evaluating Performance of Production Sharing Contract and Concessionary System: An Overview and Assessment Based on Examples from Selected Countries.Journal of Offshore Structure and Technology. 2015; 2(1): 41–54p.