Guide to extractive industries documents — oil and gas
The notion of the state sharing production of oil and gas with companies as part of a commercial enterprise was first developed in Bolivia in the 1950s. The production sharing contract (PSC) was introduced in Indonesia in 1966 and PSCs are now used widely to record arrangements for oil and gas exploration and production, particularly in developing countries; today, they are used in more than 40 countries, including in Africa, central Asia and south-east Asia.
The PSC is not the only manner by which a state may grant oil and gas exploration and production rights to commercial investors. Prior to the development of the PSC, the exploration and production of oil and gas was typically governed by way of a licence or a concession, and these regimes remain in many jurisdictions.
However, in developing nations, the PSC is now the most common means by which a state permits commercial involvement in the oil and gas industry and in many jurisdictions there are political reasons for their adoption. For example, following Indonesian independence in 1945, the concessions regime came under attack by nationalist groups. This eventually led to the Indonesian government refusing to grant new concessions, which inevitably led to a decline in foreign investment in Indonesia’s oil and gas sector. To halt this decline, the government introduced new legislation that provided for production sharing arrangements; such arrangements were widely considered to be less controversial than the previous concessions system as they enabled the government to maintain formal ownership of the resources in question, while permitting the private sector to exploit them…
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