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Production-Sharing Agreement

Contracts commonly used in the petroleum sector between an investor and the host state or a national oil company, which entitle the host state to a share of the physical quantities of the petroleum produced. Such an agreement typically allocates the resources as reimbursements on production costs, then splits the control over the remaining “profit” oil or gas between the operating group of companies and the government/ NOC. The government/NOC either sells its portion on its own, or takes cash payment from the operating companies in lieu of physical delivery of the commodity.

Source: Natural Resource Governance Institute: Oil, gas & mining fiscal terms

For a walk through an oil contract see: Oil Contracts: How to read and understand them

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