Production Sharing Agreement

Production Sharing Agreement (PSA ) is a form of contract for oil and gas concessions in the share one or more oil companies and the host country, the oil or natural gas production according to a specified key.

A distinction is made between cost oil and profit oil. Cost -Oil is the proportion of the feed oil, the income attributable to the oil companies to cover the investment and running costs. The Profit Oil is the share of funding that goes above and according to a specified key (primary split) is shared.

In order not to get 100 % of the oil produced as a cost -Oil the conveyor company during the amortization period, usually a cost -Oil - limit is agreed, which defines a maximum of the amount funded as a cost - Oil. After the payback period of the investment almost exclusively profit -Oil is promoted.

Meaning of the contract is that the production company, the first year the cost of exploration can cover (exploratory ) and technical equipment, while the guest country at this time but does not have to forego a profit.

Consider the following example: Company XY invested in exploration ( prospecting ) and digestion an amount equal to, for example, 120,000 BOE ( barrels of oil equivalent ), then the company would at least this amount plus profit get out again. Suppose the field promotes per year 100,000 BOE so could be covered to completely within the first 2 years of the spending. However, since the relevant countries had no profit in this period, a distinction is made according to cost oil and profit oil.

With the Cost Oil the expenditures of the company are to be covered. However, a cost -Oil - limit is set ( for example, 40 %) In this example, would be the BOE 40,000 per year. The expenditure would be covered so easily counted after 3 years.

The rest of the flow equivalent of the profit oil, the best for one. Amount between the land and Company is divided. This division is also called "primary split", each partner receives a share of the remaining 60,000 BOE.

Once the costs are covered, there are only the profit -Oil, so there is no cost Oil more (Rating: a very simplified example, as well as during the future years certain costs apply). The Profit Oil is allocated using the same key, but the base in the example is not now more 60,000 but 100,000.

PSA effect: drilling for oil companies under PSA 's oil and gas reserve data to draw their giving proper Cost Oil. Rising crude oil, or gas prices the cost - Oil percentage falls measured in BOE and the reserve to the company will fall in a row. With falling prices, the reverse effect is noticeable.

• Oil industry