1. Petroleum Economics & Oil Field Management
Coursework D
Submitted to: Mr. Andrew Jones
Submitted by: Muhammad Kamal (3325610)
Date of Submission: 15th May, 2015

2. Staying in the business of oil & gas as a producer can enhance the economy of a
state directly, which has surely become a golden principle in the resent era for a
state to stay economically proactive and for this developing countries that are
affluent in reserves or mineral deposits has to excavate into the petroleum industry
agreeing to the terms defined by international oil companies (IOC). Giving your own
reserves into the hands of a foreign international oil exploration company can only be
done considering the fact that is should be a win-win situation for both the state and
the multinational company that is interested in exploration. The most important
contracts are the concession and the production sharing. Among these two major
types of contracts the production sharing agreement (PSA) whose roots stated back
in 1960's is the most common type of contract between the international oil
companies and state.
Oceania which is a less developed country wants to start its petroleum exploration
with a concession contract incorporation with the national oil companies in a joint
venture with a state national oil company that is Oceania National Petroleum
Company. The state's primary priority is to increase the country's national oil
reserves and its production, but due to the lack of expertise and mainly the limited
funds the state is not fully able to do this task on its own and for that the state is
currently looking for an experienced multinational oil exploration company to explore
its oil reserves.
Among the two major type of contracts/agreements in this scenario that are
Production Sharing Agreements (PSA) and Concession Agreements (CA) there are
lots of pros and cons for both but the main and primary focus or interest is how to
compress the bidding part that is among the direct advantage for both the investor
and host. Production Sharing Agreements has many advantages as compared to the
Concession Agreements when we talk about the less developed countries. The main
advantage of the Production Sharing Agreement is that the country can keep the
maximum amount of the production in its own hands and that is some type of the
primary target as been a host as if in Concession Agreements the state gives all its
reserves into the hands of the International Oil Companies (IOC) and in this case it is
less profitable for the host country. Partnership agreements are the most important
factors that plays an important role in this scenario's as it provides the prospect for
the host state to increase its revenues drastically with the minimum to no risks and
also keeping its individuals into the industry's current practices and engaging them
with the proper training to deal with upcoming activities. Partnership agreements
should end into additional turn on capital along with the positive changes regarding
the overall management of the project or investment. In this case the state acting
organization has nothing on stake while on the other hand International Oil
Companies have to bear if there are any losses if the project does not produces the
calculated revenues. But considering all the risks associated with the project the
company that will win the bid also already knows that if, once developed the
company will be in profit for lots and lots of years to come and for this there will be

3. lots of companies that will show their maximum interest in winning the bid as they
are the one who will stay in profit for years. Another advantage of the partnership
agreements have is the sharing of the mutual decision making of the both host state
and the investor. The International Oil Companies and the state (Oceania) can help
out each other when there is a need to do so. The other advantage for the state
(Oceania) is that the country is moving towards greater production by Production
Sharing Agreement so they can apply more tax to the produced reserves for the
company and in this way they can make more overall revenue, and this is the fact
where the term de-merits should be explained in detail. Disagreement between the
partner company and the taxation system of the host state lies in the disadvantages
of the Production Sharing Agreements.
Partnership agreements are the key factors for the state to increase its overall
revenues that is the primary concern for a less developed country to explore its
national oil and gas reserves having less funds to explore on itself. Oceania can get
the International Oil Companies to explore their oil and gas resources from the
subsurface while keeping the maximum ownership of their national resources to
themselves. Oceania can get more advantage than the planned total revenue as
disparate to the Concession Agreement or in other words nationalist standard as the
National Oil Company has the major control over the petroleum operations while the
International Oil Companies has control only over the day to day functions so in this
case, for the National Oil Company there are much more chances to learn from the
International Oil Companies. The main concern in this type of agreements are that
instead of dividing the overall profit for the entire production the physical production
should be divided as it is a benefit for both the host state that is Oceania and the
multinational company and considering this fact as Production Sharing Agreement
demands the International Oil Companies to act in this way. Production Sharing
Agreements are feasible politically as well in less developing countries making it
most apposite agreement for the Oceania as a state. On the other hand
nationalisation provide the attention of political services as long lasting and often
comes with a enormous economic expenditure. So Production Sharing Agreement
can provide a strong benefit to the Oceania National Oil Company to keep the major
role in its own hands and can generate the desired revenues in a much versatile way
by partnership agreement that will grant the International Oil Company contractor.
Production Sharing Agreement will also be a benefit for the NOC in the periods of
unstable oil prices in the global market to have a control on its mutual profits.
In order to maximise the profit the Oceania National Oil Company should go for the
Production Sharing Contract instead of going for a Concessionary Contract or
Nationalising their exploration industry as in this way it will maximise the rental
factors and the overall revenue for the Oceania as a state. It will also provide a
chance for the Oceania National Oil Company to cope itself with the latest industry's
codes and also point itself in the right direction and capability essential for obtaining
the best contract possible.

4. It should be kept in mind that the most important factor in terms of economic
development for a state in terms of oil and gas exploration is that is it profitable to
explore what is inside the subsurface! as sometimes there are reserves present in
much more quantity in the subsurface but it's really not economically profitable to
explore and produce those reserves. So sometimes being rich in resources is a pest
for some less developed countries. Three important terms that are associated with
this factors are good judgment, capital and commitment to face up the difficulties. On
the other hand the countries that are rich in Petroleum do have a lots of capital to
invest with and according to the latest research in the field of exploration of oil and
gas it is evident that hydrocarbons can ran out by the end of this century as
predicted. So currently it's the best the time to invest in the petroleum sector as it
could generate more revenue for the Oceania state and can also provide a secure
financial structure against the present crisis faced by the global Oil and Gas sector.
Oceania should make their Oil and Gas Exploration policy in such a way that any
future inflation, slump or plunge in global economy can be faced as there are such
examples already set on the globe by the nations who were and still are rich in
resources like Saudi Arabia. The first factor that should be considered is the financial
funds that are available for increasing the profits from hydrocarbon resources as
after the development the Oil & Gas resources could be transferred to a financial
stock resulting in minimizing the state's management expenditures to a standard
value.
As far as the investment is concerned foreign investment can be a better option
instead of investing own capital which can be a disaster for the state as its already a
less developed country and it will be a major risk if a well goes dry. So to be on a
safe side for Oceania it is mandatory that investment from foreign funds should be
implemented. Industrialization on the other hand is also a economically better option
to reinvest the funds collected from the Oil and Gas exploration. So the main
concern is that how to manage the resources and the profit raised from these
resources in the best economical way possible. Oceania should also follow the list of
developed countries and their primary concern which is in the public sector like
health and education that are directly depended on the state's economy. Making a
contract in this way the economy of the Oceania state will surely become stable and
will increase with time and there will be list of companies that would be interested to
invest their money in both public and private sector's of Oceania.
Oceania National Oil Company functioning in affiliation with international oil
companies has had an excellent ability of mastering the performance while
maintaining a superior divide up of income generated from oil and gas exploration.
This had facilitate the Oceania National Oil Company which is still less developed, to
empower into overseas projection leading up to diverse dispute it might face in the
future once the Production Sharing Agreement ends. Future challenges that can
obstruct Oceania National Oil Company developing the fresh discoveries and also
exploring for the reserves offshore includes;

5.  Reduction in oil reserves
 Shortage of skilled employers
 Political risks and constraints
 Closing stages of production sharing and increase in control of major
national oil companies
 Obstruction in implementing competence growth strategy
 Relationship based on international level and globalization challenge
 Operating in remote areas and unapproachable energy areas
 Economic and financial management
In order to overcome these disputes and to keep surviving in the current oil and gas
market crisis globally, the Oceania National Oil Company should go after the
following factors:
 Invest a favourable amount of funds to employ highly skilled
professionals as currently Oceania is having trouble in this aspect.
 Give a contract in the hands of a good services and E&P company
which has a favourable past record.
 According to the petroleum experts it's the best time to invest in the Oil
and Gas sector so Oceania should take an advantage of the current
petroleum economics monopoly.
 Previous record suggests that limiting your options by staying only an
upstream producer is not a good option to opt. So Oceania should look
to turn into integrated energy company.
 Oceania, in order to survive in the best possible way has to clearly
work on its international relations and stick on the strategies that will
increase its revenues.