Types Of Petroleum Contracts Agreement

Risk service agreements are the least used type of contract among the three listed here. They have been used by states that have a nationalist approach, or by countries like Venezuela, Iran or Iraq, which have long had oil production. Under this type of agreement, the host Member State is merely terminating the service of an oil company or consortium in order to benefit from its financial and technical know-how. The company or consortium assumes risk and responsibility and is reimbursed by a service fee that is usually paid in cash. An example of this type of agreement is the absence of Iran`s buy-out agreements, which have proved too painful to be considered by a private investor. Examples of service agreements adopted and areas covered Often, the government strives to strengthen control over the exploration and exploitation of its resources. It can do so through service contracts that place private companies in carefully delineated tasks. Unlike modern concessions, PSAs and JVs, service contracts are considered a device in which the host government has the greatest control over a project. In this case, the host government is a contract to provide a carefully defined service only in the foreign company. The company generally does not participate in the revenue generated.

As a result, the host government does not have a meaningful control over the resource. In folklore, international oil companies often form a joint venture to bear risk and share the reward for large-scale or high-risk projects. Unlike traditional concessions and PSA, the JVs allow the host country`s partner to exercise greater control over the project. In addition to the distribution of the high financial costs of the international oil project, viVs are also very useful in minimizing potential risks, such as. B the geological risk of not detecting the oil reserve using exploration methods; Technical risk of operating in difficult or even extreme conditions (including terrain, weather and temperature); the risk of development that the oil reservoir found has characteristics that hinder extraction activities; and the political risk that unrest or uprisings will influence the oil project. The joint venture (“JV”) generally involves a commercial agreement between two or more parties who are willing to pursue a joint venture in a form to be clarified.

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