Oil and gas service contracts around the world: A review

This paper reviews the energy strategy and oil and natural gas fiscal systems of eight major oil or natural gas producing countries which have either adopted a variation of a service contract or have shown interest in this framework as an alternative to production sharing contracts over the period 1990-2014. In particular, we look at each country's variation of service contract, and examine how these variations of service contracts are different from each other. A service contract is a long-term contractual framework that is used by some host governments to acquire the international oil companies' expertise and capital without having to hand over the field and production ownership rights to them. Our review suggests that the new interest in service contracts might be explained partially by heightened sovereignty concerns and the political environment on one hand, and the need for international oil companies' capital and know-how in developing oil and natural gas fields in the host countries on the other. In our review, we also explore some of the drawbacks of service contracts including the potential for economically inefficient outcomes. In addition, we look at some possible solutions for improving the economic efficiency of service contracts. (C) 2014 Elsevier Ltd. All rights reserved.