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

Abstract

Most developing countries with petroleum resources are constrained in the ability to refine their oil and gas resources. This virtually results in the involvement of the International Oil Company (IOC) by the National Oil Company (NOC) of a particular nation to enter into an agreement to achieve the production of oil based on an agreed framework. However, in cur-rent development, there is little focus on the contractual agreement, particularly on the pro-duction sharing agreement by the IOC in the exploration of petroleum resources of developing countries. The primary objective of this paper is to critically explore the contract structure of production sharing agreement by the IOC in the exploration and development of petroleum resources in developing countries. Content analysis was used as the methodology of the study after examining several literatures. The findings indicate that the contract structure of the production sharing agreement (PSA) between NOC and IOC plays a significant role in the cost and risk of exploration and development of oil. In addition, it is noted that the joint committee of the NOC and IOC plays a paramount role in monitoring the operations of PSA between the NOC and IOC. Hence, from the gross oil production, the NOC gets its share as profit while IOC gets its share income tax. As an instrument of contract structure in the oil and gas sector, PSA needs further entrenchment between IOC and NOC to avoid likely issues that can emanate between the two parties in the face of current developments.