In production-sharing agreements, the country`s government entrusts the production and exploration activities to an oil company. The oil group supports the mineral and financial risk of the initiative and explores, develops and produces the field as needed. During the successful year, the company can use the money from the oil produced to recover capital and operating expenses known as “cost oil.” The rest of the money is called “profit oil” and is shared between the government and the company. In most production allocation agreements, changes in international oil prices or the rate of production affect the company`s share of production. Production-sharing agreements can be beneficial for governments in countries that lack expertise and/or capital to develop their resources and wish to attract foreign companies. They can be very profitable agreements for the oil companies involved, but they often present a significant risk. Production sharing (EPI) or production distribution (PSC) agreements are a type of joint contract signed between a government and a company (or group of companies) that represents the amount of (usually oil) lines extracted from the country. Oil-sharing agreements (IPIs) are among the most common types of contractual agreements for oil exploration and development. As part of an EPI, the State, as the owner of mineral resources, assigns a foreign oil company (FOC), as a contractor, to provide technical and financial services for exploration and development activities. The state is traditionally represented by the government or one of its agencies, such as the national oil company (NOC).
The FOC acquires a right to a certain share of the oil produced as a reward for the risk received and the services provided. However, the state still owns the oil produced, subject to the contractor`s right to its share of production. The government or its NOC generally has the opportunity to participate in different aspects of the exploration and development process. In addition, IPEs often provide for the creation of a single committee that brings the two parties together and oversees operations. Production-sharing agreements were first used in Bolivia in the early 1950s, although their first implementation was similar to that of today in Indonesia in the 1960s. [1] Today, they are often used in the Middle East and Central Asia. Risk-sharing contracts (RSCs), first introduced in Malaysia, depart from the production-sharing contract (PSC), which was introduced in 1976 and was recently revised last year as an oil recovery amp toP(PSC), which increased the recovery rate from 26% to 40%. As a high-yield agreement, it is being developed in Malaysia for the population and private partners, in order to benefit from both a successful and vibrant monetization of these peripheral areas. During the Asia Forum production optimization week of the Center for Energy Sustainability and Economics in Malaysia, July 27, 2011, Finance Minister YB. Sen. Dato`Ir.
Donald Lim Siang Chai said that the pioneering RSC requires optimal implementation of production targets and allows the transfer of knowledge between foreign and local players in the development of Malaysia`s 106 marginal fields, which contain a total of 580 million barrels of oil equivalent (BOE) in the current high-demand and low-resource market. [2] The cost-cutting gives the government the guarantee that it will recover some of the production (as long as the price of crude oil produced is higher than the cost-cutting), especially in the early years of production when costs are higher.