Production-sharing agreements do not confer any ownership rights over oil production on the company or consortium that concludes the agreement. Instead, the company receives a share of the total production. The production balance sheet belongs to the host state. This did not result in delays, postponements or investments expected immediately. This was clearly contrary to the interests of host governments. Treaties do not provide for waivers of unexplored areas. Other more traditional concession agreements have granted the IOC “in situ” oil, with market and price powers. Royalties were flat or fixed for unit rates and were sometimes credited with income tax. There was no or little signing bonus and sometimes no income tax. These conditions have often been “frozen” for the duration of the agreement. Risk service contracts.
It is an agreement by which the oil company is responsible by the public body, as a contractor, for the use of all venture capital for oil exploration and development. In the event that the contractor does not discover the oil tank, the contract will be foiled without any obligation of the parties. However, if the contractor is successful in the oil exploration of the volume of trade, he has the right to recover, in addition to a possible participation in the subsequent undertaking, the costs and remuneration related to the benefits. If not, the company will run out of bag. Such an agreement guarantees that the host government will retain sovereignty over natural resources at all times. Like a PSA, the risk services contract deals with the situation where a host government tries to use private companies to withstand the risk of exploration. The new modernized concession can be distinguished from the old traditional concession by the following features, such as the smallest concession area; The existence of a waiver provision; much shorter duration The possibility of an extension in the event of the launch of commercial oil production; strengthening state control and the possibility of participating in the oil investment project; significant financial improvements in the form of equal profit sharing, rents, new licensing fees, bonus systems and income tax. The modern concession agreement replaced the traditional concession regime in the 1940s, when Venezuela imposed additional financial burdens on its foreign investors (such as tax incentive schemes). The oil and gas industry operates in countries around the world in accordance with a number of types of agreements. These agreements can generally be categorized into one of four categories (or a combination of categories): risk agreements, concessions, production sharing agreements (PSA, also known as production sharing contracts, PSCs) and service contracts.
Risk service agreements are the least used type of contract among the three listed here. They have been used by states that have a nationalist approach, or by countries like Venezuela, Iran or Iraq, which have long had oil production. Under this type of agreement, the host Member State is merely terminating the service of an oil company or consortium in order to benefit from its financial and technical know-how. The company or consortium assumes risk and responsibility and is reimbursed by a service fee that is usually paid in cash. An example of this type of agreement is the absence of Iran`s buy-out agreements, which have proved too painful to be considered by a private investor. The joint venture (“JV”) generally involves a commercial agreement between two or more parties who are willing to pursue a joint venture in a form to be clarified.