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:: Volume 14, Issue 53 (Summer 1396 2017) ::
QEER 2017, 14(53): 185-211 Back to browse issues page
The influence of different methods of royalty calculation on renegotiation request in upstream oil investment contracts
Abstract:   (210 Views)

Paying the royalty by an international oil company (IOC) to host government is one of the principal basis of fiscal regimes in upstream oil investment contracts like license and production sharing agreement. Unlike traditional methods which were only based on selling value and production volume, the new methods of royalty calculation contain a combination of price, production volume and rate and profitability with regard to the technical and economical aspects of an oil field. One issue which arises a conflict between parties in a contract is the clarification of conditions in which a renegotiation (hardship) clause could be referred to by a party of the contract. In this study, we are going to answer to this question that: how royalty and its calculation method lead to a renegotiation request in contracts. It will be shown that royalty calculation method and its influence by exogenous economical conditions can justify a hardship situation through two ways, a longer period of investment return for foreign company (IOC) and a reduction in government income. As a Conclusion, to reduce the occurrence of hardship due to royalty payment, considering some factors like: applying the combinational methods of royalty calculation, exact determination of royalty rates, flexibility in royalty payment method and attention to the life period of a field with its technical features, are essential at the moment of contract writing

Keywords: royalty. royalty calculation .renegotiation. upstream oil investment contracts
Full-Text [PDF 555 kb]   (186 Downloads)    
Type of Study: paper | Subject: Contracts
Received: 2016/06/16 | Accepted: 2017/05/28 | Published: 2017/09/20
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The influence of different methods of royalty calculation on renegotiation request in upstream oil investment contracts. QEER. 2017; 14 (53) :185-211
URL: http://iiesj.ir/article-1-704-en.html
Volume 14, Issue 53 (Summer 1396 2017) Back to browse issues page
فصلنامه مطالعات اقتصاد انرژی Quarterly Energy Economics Review
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