Production Sharing agreements are the predominant type of contractual arrangement, governing the relation between governments and foreign oil companies throughout the exploration and development phase. PSA were first introduced in Indonesia in 1966 and since then varied in some elements but witnessed no major development.
The paper/presentation will argue that in the current context of sustained oil prices, need of increasing production, depletion of reservoirs, and the remaining reserves, Governments and Foreign Oil companies need to revisit some of the basic elements of the PSAs in order to address the above context adequately.
The rigidness of the current structure of PSA does not allow government and E&P companies to adapt their strategies throughout the development phase. To overcome some of the disadvantages of PSAs, governments can introduce dynamic variables such as:
Dynamic profit share linked to Crude prices.
Flexible Cost Recovery systems
Incentive system based on key performance indicators
The paper/presentation will argue that there this much room for a "dynamic win-win" based approach, which will accommodate the interest of all stake holders.
By no means, does the paper claim to provide a comprehensive analysis of PSA. It merely suggests some reform concepts for the sole purpose to trigger a constructive debate. To gauge the actual impact of such changes on all parties, extensive economic modelling and analysis are needed, which are beyond the scope of this paper
Another limitation is that the subject analysis is narrowed to the Egyptian type of PSA, which may differ slightly from the original Indonesian type.