PUBLICATIONS - SPP Research Paper - THE VARIOUS STRUCTURES FOR GRANTING PETROLEUM LICENCES

Because the government retains ownership of the resource in the ground, the only oil volumes that the investing company will be able to book are the volumes it receives in the form of cost recovery plus the volumes that it receives as its share of the profit oil. [...] So the share of value that the government realizes from the signature bonuses will be determined by the perception of value at the time of the contract offering rather than the actual value that is realized from the monetization of the resource. [...] However, if the government chooses to allow for the bidding of the entire suite of rates and/or the values of the parameters that trigger the rates, or if more than one economic-value bid criterion is being used to determine the winning bid (e.g., bonus and primary resource rent), it may not be clear which bid is actually offering the highest value for the government. [...] Therefore, awarding the contract to the bidder with the highest share of value to the government (regardless of instrument) Vis anoltu ae guarantee that the government will realize the highestabsolute value from the resource in the contract area. [...] Using the engineering concept that form follows function, the conclusion to be reached is that the first step is to assess the qualities of the potential resource to be developed and the possible bidders for the resource.