Production Sharing Agreements

This page discusses production sharing agreements and reserve reports for upstream oil and gas projects. Production sharing agreements allocate the proceeds from oil and gas developments to the state and to the private developer. They can involve royalty payments, cost recovery and allocation of oil and gas proceeds after costs have been recovered.

I begin by discussing the general operating characteristics of oil reserves is illustrated in the screenshot below. Notice the proven and probable reserves at the top. Proved reserves are called 1P; probable reserves are 2P and possible reserves are 3p.

The next screenshot illustrates historic gas production. Note the decline curve and the periods of shut down.

When modelling the operation of oil and gas assets you should reflect all of the hedging agreements so that you can accurately model the revenues

The graph below illustrates the reserves over time and decline rates.

The screenshot below illustrates the fundamental cash flow in a model with oil prices, capital expenditures and operating expenses