Chapter 17: Lease Vs. Purchase Decisions Available to Purchase

So far in this book’s discussions and examples of petroleum economics, the assumption has been that oil companies buy the production facilities—the platforms and so on—they need to develop and produce an oil field. There are occasions, however, when leasing them is a more attractive proposition.

A lease is a rental agreement that, on the face of it, is no different from the rental agreements you’re probably familiar with yourself. The word “rent” isn’t typically used in the oil industry, however; “lease” is. For all intents and purposes, though, they mean the same thing. One party to the agreement builds or buys something and is its owner but allows another party to use it in return for periodic payments.