Under the modern concession contract, the dealer works primarily for himself. Under the production sharing contract and the risk services contract, contractors work primarily for the government. Under the hybrid contract or joint venture agreement, the foreign company works in collaboration with state-owned oil companies. Under concession agreements (or licenses), the selected refining company or consortium conducts exploration activities. The company takes over all of the production, when it is extracted, in return for the payment of a royalty to the host state. Royalties could be in cash or in kind. It could also take the form of a income tax or other types of fees and contributions, possibly including an additional income tax, if it exceeds a pre-defined threshold. This type of contract is called a licence and generally gives the licensee the exclusive right to explore and value oil, own and market production, and own the corresponding equipment and facilities. Examples of agreed service agreements and areas of state participation in joint ventures help developing countries obtain new oil technologies, know-how and job training from a more developed foreign investor. Cooperation with the state-owned oil company can increase an investor`s chances of winning the tender for an oil project. If a state-owned enterprise already has an existing licence to carry out oil activities, the creation of a joint venture will allow a foreign investor to benefit. 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 (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. These three types of agreements are explained in the following sections. In folklore, international oil companies often form a joint venture to bear risk and share the reward for large-scale or high-risk projects. Unlike traditional concessions and PSA, the JVs allow the host country`s partner to exercise greater control over the project.