Introduction

Production Sharing Agreements (PSAs) are one of the most common types of contract arrangements for exploring and developing oil and gas. Under a PSA, the State is the owner of the mineral resources in question, but agrees with a private company, or sometimes with a national oil company of another state– usually a foreign investor – to provide technical and financial services for exploration and development of the resources. The State is usually represented by the government or by the national oil/gas company. The foreign company is entitled to a stipulated share of the oil/gas produced as compensation for the risk taken and services rendered. The State remains the owner of the mineral resources, however.

In Russia legislation on PSA's was adopted in 1995. Despite the fact that the Russian PSA Law is a modern and relatively advanced piece of legislation, PSA:s has never caught on in Russia. Today in Russia there are only three PSA:s. Given the critical importance to the Kremlin of maintaining oil output, and given the fact that conventional reserves are depleting, resuscitating PSA:s could perhaps be a way to encourage and entice the much needed flow of Western capital and technology. This flow is required to enhance efficiency in exploration and production, to move into new areas such as shale oil and shale gas, and to develop Arctic offshore fields.

This article explores the status today of PSA:s in Russia and discusses whether Russia needs PSA:s to maintain its standing as a leading oil producing country.

Does Russia need Production Sharing Agreements?
by Prof. Dr. Kaj Hobér (addendum TDM 4 (2013))

 

Note: added as an addendum to the TDM 10th anniversary special in October 2013