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.  Today, they are often used in the Middle East and Central Asia. Profit Oil incidents can also trigger other types of tension. For example, contractors will be aware of the limited lifespan of their PPE and therefore wish to make as much profit as possible for themselves for the remaining duration of the agreement. However, this may run counter to the host government`s view that this is the best long-term solution. Profits are divided when actual production begins. The more the IOC has contributed to the early stage of field research and development, the higher it can expect a higher share in return. The parties to PSA are usually the state (by the competent ministry or government officials), often, but not always, the state oil company (which takes over the provision of the state`s share in production) and the IOC (as a contractor). If the contractor is a consortium of IOCs under the EPI, one of them is designated as an operator. In some countries, once a commercial discovery has taken place, the state has the opportunity to assume the role of operator (for example. B in China) or to cooperate with the contractor through a joint venture (for example. B in Egypt).
By definition, a production-sharing contract (CSP) is a contract between one or more investors and the government, which defines the rights to prospect, explore and exploit mineral resources in a specified area over a specified period of time. In other words, a COPS is an agreement between the parts of a well and a host country regarding the percentage of oil and gas extraction that each party receives after the parties have recovered a certain amount of costs and expenses. Criticism of the Indian EPI (and other cost recovery PPE) is often unaware of the reality that IOCs are in a country to generate profits and not just recover their costs. This is not to say that IOCs never become lazy or pay their expenses. As the Kelkar Committee suggested, the solution for India (and countries in a similar situation) is not a transfer to a revenue-sharing mechanism, but better management of PPE and prudent management of its rights under PSA by the state. However, as this edition was printed, the Indian government announced its new licensing regime, the open acreage licensing policy, which we know will abandon the current PSA in a controversial way in favour of revenue sharing. In 2012, GoI formed the Rangarajan Committee, chaired by Dr. Rangarajan, Chair of the Economic Advisory Committee, to examine, among other things, PSA`s existing cost hedging and profit-sharing mechanism. In its report, the Rangarajan committee recommended converting to a revenue-sharing model. The state`s share would start on the first day of production (not on the current model) and the relevant GoI and IOC would share the revenues according to a pre-established formula.
The committee proposed that the share of revenue be determined by tenders for future PPE, with the company offering the state the highest share of the block. After cost Oil is awarded, the allocation of the remaining production between the parties, known as profit oil, will also be regulated by PSA.