Author: bomuo

An agreement between the parties to a well and a host country regarding the percentage of production each party will receive after the parties participating in all the expenses have recovered a specified amount of costs and expenses. The contractor usually bears all risk and costs for exploration, development and production. In return, if exploration is successful, the contractor is given the opportunity to recover the investment from production, subject to a specific limit. The contractor also receives a stipulated share of the production remaining after cost recovery, referred to as profit hydrocarbons. Ownership is retained by the host government, however the contractor usually receives title to the prescribed share of the volumes as they are produced.

This system is often popular in jurisdictions where the legal system is viewed as not being stable and does not afford sufficient protection for a corporation’s investments. The corporation thus insists on a contract with the state or state company in order to secure some additional measure of security through international law. The host countries also like this system because they feel it gives them some added security as well in that they share in the production, which is oftentimes shared even before all the investor’s costs have been recovered. In these cases production is first split into a cost component – Cost Oil or cost Gas – and a profit component – Profit Oil or profit Gas. The proportion allowed for the recovery of costs in a given year is often limited to ensure that the profit component is positive and that the state will receive at least a minimum level of annual or monthly revenues.

PSC systems typically also include corporate income tax, royalties, bonuses, and land rental fees to form the overall fiscal system. In this way they are similar to concession systems.

Production sharing regimes that place a ceiling on the amount of production available for cost recovery produce an effect that is similar to that of royalty. With a ceiling on the amount of production available for cost recovery, an investor will not share in the economic rent until much later in the project life as it takes longer to recoup its initial investment

When exploratory wells find commercially viable natural gas or petroleum deposits, it is economical to build a permanent platform from which well completion, extraction, and production can occur. These large, permanent platforms are extremely expensive, however, and generally require large expected hydrocarbon deposits to be economical to construct. Some of the largest offshore platforms are located in the North Sea, where because of almost constant inclement weather, structures able to withstand high winds and large waves are necessary. A typical permanent platform in the North Sea must be able to withstand wind speeds of over 90 knots, and waves over 60 feet high. Correspondingly, these platforms are among the largest structures built by man. There are a number of different types of permanent offshore platforms, each useful for a particular depth range. Because of their size, most permanent offshore rigs are constructed near land, in pieces. As the components of the rig are completed, they are taken out to the drilling location. Sometimes construction or assembly can even take place as the rig is being transported to its intended destination.

Primary target usually refers to the most important reservoir which an O&G company hopes will contain hydrocarbons when drilling. Secondary target refers to other possible reservoirs that may be above or below the primary target, which are usually thought to be not as attractive for various reasons as the primary target, possibly because they are thinner, of variable quality, are of low poroperm qualities, etc. In real life secondary targets can turn out to be better than primary, or both targets can be good or both bad

The search for an area for probable exploration. The search normally includes geological and geophysical studies of relatively large areas undertaken in an attempt to locate specific areas warranting detailed exploration. Prospecting usually occurs prior to the acquisition of mineral rights.

An area of exploration in which hydrocarbons have been predicted to exist in economic quantity. A prospect is commonly an anomaly that is recommended by explorationists for drilling a well.

A project associated with a potential accumulation that is sufficiently well defined to represent a viable drilling target.

Project activities in this case are focused on assessing the chance of discovery and assuming discovery, the range of potential recoverable quantities under a commercial development program

The allocation of production among reservoirs and wells or pipeline allocation of capacity among shippers, etc.