Stopping costs gives the government the guarantee of recovering some of the production (as long as the price of crude oil produced is higher than the cost-stopping), especially in the early years of production when costs are higher. Since the early 1980s, all large-scale contracts have contained an immutable non-cost clause. Stopping costs can be a fixed amount, but in most cases it is a percentage of the cost of crude oil. Production sharing (EPI) or production distribution (PSC) agreements are a type of joint contract signed between a government and a company (or group of companies) that represents the amount of (usually oil) lines extracted from the country. In production-sharing agreements, the country`s government entrusts the production and exploration activities to an oil company. The oil group supports the mineral and financial risk of the initiative and explores, develops and produces the field as needed. During the successful year, the company can use the money from the oil produced to recover capital and operating expenses known as “cost oil.” The rest of the money is called “profit oil” and is shared between the government and the company. In most production allocation agreements, changes in international oil prices or the rate of production affect the company`s share of production. Production-sharing agreements were first used in Bolivia in the early 1950s, although their first implementation was similar to that of today in Indonesia in the 1960s. [1] Today, they are often used in the Middle East and Central Asia.
Performance-based agreements, such as rsc berantai, focus more on production and valuation rates compared to production-sharing contracts, which are favoured by oil companies. The focus on optimizing production capacity in outlying areas can be extended to contracts for the recovery of major oil deposits in a rapidly comprehensive resource industry. Currently, Petronas` recovery factor for major oil deposits is about 26%, which can still be improved through the optimization of production techniques and the exchange of knowledge. [3] For the first time in Malaysia, risk-sharing contracts (CSRs) depart from the production sharing agreement (PSC) introduced in 1976 as an amped oil recovery (EOR), which increased the recovery rate from 26% to 40%. As a high-yield agreement, it is being developed in Malaysia for the population and private partners, in order to benefit from both a successful and vibrant monetization of these peripheral areas. During the Asia Forum production optimization week of the Center for Energy Sustainability and Economics in Malaysia, July 27, 2011, Finance Minister YB. Sen. Dato`Ir. Donald Lim Siang Chai said that the pioneering RSC requires optimal implementation of production targets and allows the transfer of knowledge between foreign and local players in the development of Malaysia`s 106 marginal fields, which contain a total of 580 million barrels of oil equivalent (BOE) in the current high-demand and low-resource market. [2] Production-sharing agreements can be beneficial for governments in countries that lack expertise and/or capital to develop their resources and wish to attract foreign companies. They can be very profitable agreements for the oil companies involved, but they often present a significant risk. The amount of eligible costs is often limited to an amount called a “cost freeze.” If the hedging costs are higher than the cost-stopping, the company has the right to recover only the limited costs of stopping costs.
If the cost is less than the cost stoppage, the difference between costs and the cost-stopping is called “excess oil.” In general, but not necessarily, excess oil is shared between the government and the company according to the same rules of profit oil. If the achievable costs exceed the cost stoppage, the contract is defined as saturated.