Why have Production Sharing Agreements replaced Concession Agreements for

Exploration & Production Activity?

Background

The rise of nationalism in oil producing states during the 1960s was brought about from a

desire by host governments to regain greater control over their indigenous mineral assets,

as well as political motivations to wrest a higher economic rent from American and European

oil companies.

The typical Concession Agreements then in force, between host governments and

International Oil Companies (IOCs), had generated a great deal of dissatisfaction over

governmental returns and finances, and have today been largely superseded by Production

Sharing Agreements (PSAs) or Production Sharing Contracts (PSCs).

The major differences between these two contractual systems that determine relationships

between host governments and International Oil Companies are the levels of control granted

to IOCs, levels of state involvement and intervention and participation, and the financial, or

fiscal, system that divides and distributes the economic returns to both the government and

IOC.

Assignment Task

Your assignment task is to research the reasons and justification behind host governments

moving away from Concessions and replacing with PSAs/PSCs, and why IOCs have

accepted such a dramatic change in their own share and profits from Exploration and

Production activity in resource-rich countries.

In a 2,000-word Essay you should outline the fundamental differences between the

Concession systems and PSA/PSC systems, and the rationale behind producer countries

favouring the greater economic rentals they receive through PSAs/PSCs. Discuss why host

governments have succeeded in extracting more money from usually IOCs, and why, faced

with such a change in finances, IOCs have continued to explore for, and exploit mineral,

assets now their financial share of the profits has been seriously reduced.

Your own interpretations and conclusions from yours researches are fundamental.

Supporting your own arguments in a robust and objective manner will qualify for better

marks than a simple re-statement of the data and opinion found in the research. This should

be a high-level review; the allowed word count is a deliberate constraint, so make sure you

write a “rounded” essay, and do not discuss in too much detail.