PETROLEUM CONCESSION

AGREEMENT

IMRAN A. HULLIO
PETROLEUM ECONOMICS
LECTURER IPNGE, MUET
TERMS TO GET FIRST
• PROFIT OIL-After deducting the cost of
recovery
• COST OIL-The recovery cost
• NOC-National oil company
• IOC-International oil company
• JV-Joint venture
• PSA-Production sharing agreement
• PSC-Production sharing contract
CONCESSION AGREEMENT

• A concession agreement typically refers to a

contract between a company and a government
that gives the company the right to operate a
specific business within the government's
jurisdiction, subject to certain terms.
• Concession agreement vary from million dollars
contracts of exploration of minerals to the
running of small government entities.
CONCESSION AGREEMENT
• The concession agreement introduced in 1950s.
• In these contracts, the host govt assigns the right
of exploring and developing areas for minerals
extractions to the companies in return of royalty
and taxes.
• The contracts embody the different terms and
conditions for onshore and offshore exploration
and production.
CONCESSION AGREEMENT IN PAK
• In Pakistan, the Apex institute which issue the
CONCESSION AGREEMENT to the companies
is Ministry of Energy (Petroleum Division).
• The Directorate General of Petroleum
Concessions is one of the Directorates of the
Ministry of Energy functioning as the regulatory
authority for all upstream exploration and
production activities in Pakistan
• All the types and terms are written in
Exploration and Production Policy 2009.
CONCESSION AGREEMENT IN PAK
• According to the act of petroleum exploration
and production:
• Onshore and offshore licensing system is based
on petroleum concessional agreement (PCA)
• Offshore licensing system is based on production
sharing agreement (PSA)
DIFFERENCE BETWEEN PCA AND PSA
• Time period: PCA is long term and PSA is short
term.
• Royalty: different values of royalties
• Income Tax: Different values of Taxes
Royalty
• The Onshore Rules and the Offshore Rules
specify that a royalty is payable on the value of
petroleum produced and saved.

• The royalty under the Onshore Rules is set at

12.5%, whereas the royalty under the Offshore
Rules ranges from 5% to 12.5% based on a time-
triggered sliding scale.
Income Tax
• Tax on income will be payable at the rate of 40%
of the profit or gains derived by an offshore
petroleum exploration and production
undertaking and 50% of the profits or gains
derived by an onshore petroleum exploration
and production undertaking.
Production Sharing Agreements (PSA)
Production Sharing Contracts (PSC)
• It is an agreement between contractor and govt
for exploration and production of oil and gas.
• In production sharing agreements the country's
government awards the execution of exploration
and production activities to an oil company.
• The oil company bears the mineral and financial
risk of the initiative and explores, develops and
ultimately produces the field as required.
Production Sharing Agreements (PSA)
Production Sharing Contracts (PSC)
• In this agreement, the company invest all the money
to explore, develop and produce oil and gas.
• The company bears all the financial risks.
• When successful, the company is permitted to use
the money from produced oil to recover capital and
operational expenditures, known as "cost oil“
• The remaining money is known as "profit oil", and is
split between the government and the company.
• Typical, both parties get 70/30 percent. 70 govt and
30 percent for company.
Production Sharing Agreements (PSA)
Production Sharing Contracts (PSC)
• In most of the production sharing agreements,
changes in international oil prices or production rate
affect the company's share of production.
• Production sharing agreements can be beneficial to
governments of countries that lack the expertise
and/or capital to develop their resources and wish to
attract foreign companies to do so.
• They can be very profitable agreements for the oil
companies involved, but often involve considerable
risk.
Production Sharing Agreements (PSA)
Production Sharing Contracts (PSC)
• The rights over the oil and gas remained hold by
Govt.
• All the expanses of exploration, development
and production are borne by company.
• When it is commercial discovery then all the cost
of recovery are balanced by the predetermined
percentage of the PSA.
Production Sharing Agreements (PSA)
Production Sharing Contracts (PSC)
JOINT VENTURE AGREEMENT
• The host govt permits the IOC to explore and
produce the oil and gas in the country.
• In JV contract, the contracting company assume
all the risk of exploration, development and
production of oil and gas.
• If there is a commercial discovery, the host
government contributes the cost of recovery
from the production of oil which is called COST
OIL
JOINT VENTURE AGREEMENT
• Similarly, the remaining oil is called PROFIT
OIL which is divided in between govt and
company.
• It is same like production sharing agreement but
there is difference in the sharing of PROFIT OIL.
• Moreover, the right over the oil and gas is hold
by National Oil Company (NOC).
READ TWO MORE CONTRACTS
YOURSELF AND DISCUSSION IN Q-A
CLASS
1. RISK CONTRACT
2. SERVICE CONTRACT