Licensing may be generally described as the process by which the owner of natural resources (usually the State) authorises or permits a public or private entity to exploit the natural resources and to regulate the manner in which operations under the license are conducted. This highlights two key aspects of licensing – the grant of rights and the regulation of operations. The main fiscal regimes in the oil and gas field are known as licensing agreements (where the entrepreneur takes most of the risks) or production sharing contracts or risk service contracts where the government takes a higher risk).

Under a competitive bidding system, applicants are typically required to meet certain requirements to participate in the bidding process. The winner of the bid would be determined on the basis of competitive sealed bids. The bid may be based on the percentage of royalty which an applicant may be willing to offer or the cash bonus offered by the applicant for the license