Partnerships in oil and gas production‐sharing contracts
- 1 August 2004
- journal article
- case report
- Published by Emerald in International Journal of Public Sector Management
- Vol. 17 (5), 431-442
- https://doi.org/10.1108/09513550410546606
Abstract
In countries with large or potentially large oil and gas deposits, the resource and its extraction tend to become vital cornerstones of the economy. However, uncertainties involved in finding commercial quantities of oil and gas and the intensive capital required for undertaking exploration and production result in significant business risks. The petroleum fiscal systems in many developing countries are now opting for production‐sharing contracts (PSC) as a new model of agreement for the exploration and production of oil and gas resources. This paper extends the principal‐agent theory to foster understanding of partnership between the host government and its foreign contractor in the realm of PSC. The theory highlights the importance of moral hazard and adverse‐selection problems. To avoid these uncertainties and asymmetric information, the principal (national oil company) needs to design an incentive contract that induces the agent (international oil company (IOC)) to undertake actions that will maximise the principal's welfare. Under a PSC, the state has to offer contract terms that are attractive enough for the IOC to enter into an agreement. At the same time, the terms must allow the state to receive maximum economic returns from the venture.Keywords
This publication has 8 references indexed in Scilit:
- Public-Private Partnerships in Thailand: A Case Study of the Electric Utility IndustryPublic Policy and Administration, 2003
- Regulation and public‐private partnershipsInternational Journal of Public Sector Management, 2002
- The self-enforcing provisions of oil and gas unit operating agreements: theory and evidenceJournal of Law, Economics, and Organization, 1999
- Regulation of privatised firms in BritainEuropean Economic Review, 1988
- Recent Books in P. A.: A CollagePublic Administration Review, 1986
- The Influence of Private Contractual Failure on Regulation: The Case of Oil Field UnitizationJournal of Political Economy, 1985
- Interorganizational Cooperation and Decision Making Autonomy in a Consortium Multihospital SystemAcademy of Management Review, 1984
- Theory of the firm: Managerial behavior, agency costs and ownership structureJournal of Financial Economics, 1976