Framework For Marginal Fields Risk Service Contracts
Performance-based agreements like the trail-blazing Berantai RSC have a keener, laser-like focus on production and recovery rates as compared with production-sharing contracts favoured by oil majors. This emphasis on optimising production capacities in marginal fields can be extended to contracts governing recovery of main oilfields in an industry of rapidly depleting resources. Currently, Petronas’ recovery factor is about 26 per cent for main oilfields, which can be further improved with optimised production techniques and knowledge exchange.
- Marginal Fields are located within a producing block and its main product is oil;
- The IOC provides technical, financial, managerial or commercial services to the state from exploration through production;
- Risk service contracts – the IOC bears all the exploration costs;
- Petronas retains ownership of oil;
- The Internal Rate of Return (IRR) is estimated at between 7 – 20% subject to terms and conditions – more attractive ROI than a PSC regime;
- Contractor receives fee payment commencing from first production and throughout the duration of the contract
- Fee is subject to taxes – but to incentivise investment in marginal fields Malaysia has reduced tax for from 38% to 25%, to improve commercial viability of investment projects;
According to think tank, Arc Media Global, while efficient, the RSC is essentially a contract that significantly increases an operator’s risks of exposure.
Read more about this topic: Production Sharing Agreement
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