Production sharing agreements (PSAs) are used primarily to determine the share a private company will receive of the natural resources (usually oil) extracted from a particular country. PSAs were developed by the United States Department of Energy and are deployed in the Middle East and Central Asia. In PSAs the national oil company awards the execution of exploration and production activities to the international oil company (contractor). The contractor bears the mineral and financial risk of the initiative and, when successful, recovers capital expenditure and costs incurred in the year (cost oil) by means of a share of production. This production share varies along with international oil prices. In certain PSAs changes in international oil prices affect also the share of production to which the contractor is entitled in order to remunerate its capital invested (profit oil) after costs incurred are repaid by cost oil. A similar scheme applies to buy-back contracts. PSAs are ideal for poorer countries exploring new lands or wanting to extract oil from deep underground fields.[1] Investors are protected from the risks involved.[1]
References
- ^ a b Janabi, Ahmed (2007-05-05). Row over Iraq oil law. Al Jazeera.
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