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What is Production Sharing?

Production Sharing A Production Sharing Agreement is used in the oil and gas industry, specifying the sharing of production, costs, and revenues among parties involved in exploration and production activities.



Sample template:



PRODUCTION SHARING AGREEMENT


1. DEFINITIONS AND INTERPRETATION

1.1. Definitions


For the purpose of this Production Sharing Agreement (the "Agreement"), the following definitions shall apply:


"Affiliates" means, in relation to a Party, any Person directly or indirectly Controlled by, or being under the same Control as, or Controlling, that Party.


"Contract Area" means the offshore area in the Gulf of Mexico as described in Schedule A attached hereto and for which the Parties are granted the rights of exploration, extraction and production of Hydrocarbons under this Agreement.


"Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management, policies or operations of an entity, whether through ownership of shares, by contract or otherwise.


"Government" means the government of the United States of America.


"Hydrocarbons" means any mixture of hydrocarbons in solid, liquid or gaseous state, including, without limitation, crude oil and natural gas.


"Party" means any party to this Agreement, and "Parties" means all the parties to this Agreement.


"Person" means any corporation, company, partnership, joint venture, association, trust, or individual.


"Revenue" means the percentage share of the aggregate monetary value of Petroleum produced and saved in the Contract Area.



2. TERMS AND CONDITIONS


2.1. Scope and Grant of Rights

In consideration of the mutual covenants and agreements set forth in this Agreement and subject to the terms and conditions herein contained, the Government hereby grants to the Parties the exclusive right to explore, extract and produce Hydrocarbons from the Contract Area. The Parties agree to carry out these activities in accordance with the terms of this Agreement and all applicable United States laws and regulations.



2.2. Participating Interests and Joint Venture Formation

The participating interests of the Parties and their respective rights, obligations and liabilities under this Agreement, as described in Schedule B attached hereto, shall be in the proportions specified therein. The Parties shall form a joint venture entity to undertake the exploration, extraction, and production activities within the Contract Area.



2.3. Allocation of Production, Costs and Revenues

2.3.1. Allocation of Production


All Petroleum produced and saved from the Contract Area shall be apportioned among the Parties in accordance with their respective participating interests specified in Schedule B attached hereto.


2.3.2. Allocation of Costs


All costs and expenses incurred in connection with the exploration, extraction and production activities under this Agreement shall be shared among the Parties in proportion to their respective participating interests as described in Schedule B attached hereto.


2.3.3. Allocation of Revenues


All Revenues generated from the sale of Petroleum produced and saved from the Contract Area shall be distributed to the Parties in accordance with their respective participating interests specified in Schedule B attached hereto.



2.4. Environmental, Health and Safety Compliance

The Parties shall conduct all activities under this Agreement in an environmentally responsible manner, in full compliance with all applicable United States environmental laws and regulations and this Agreement. The Parties shall take appropriate measures to prevent harm to the environment and to minimize adverse impacts on the environment in the Contract Area.



2.5. Liability and Indemnification

Each Party shall be responsible for and shall indemnify the other Parties, the joint venture and the Government from any loss, damage, claim, demand, liability or expense arising out of or resulting from their operations in the Contract Area to the extent caused by the negligence or willful misconduct of such Party, its employees, agents, or subcontractors.



2.6. Governing Law and Dispute Resolution

2.6.1. Governing Law


This Agreement shall be governed by and construed in accordance with the laws of the United States of America.


2.6.2. Dispute Resolution


Any dispute, controversy or claim arising out of or relating to this Agreement, or the interpretation, breach, termination or validity thereof, shall be finally settled by arbitration in accordance with the International Chamber of Commerce Rules of Arbitration. The seat of arbitration shall be in New York, USA, and the proceedings shall be conducted in the English language.



2.7. Assignment

No Party shall assign, transfer or otherwise dispose of any of its rights, interests or obligations under this Agreement to any Person without the prior written consent of the other Parties and the Government, such consent not to be unreasonably withheld or delayed.



2.8. Representations and Warranties

Each Party represents and warrants to the other Parties and the Government that it has the full legal right, power, and authority to enter into and perform this Agreement and that its execution, delivery and performance of this Agreement will not conflict with any other agreement to which it is a party or by which it is bound.



2.9. Miscellaneous

2.9.1. Entire Agreement


This Agreement, together with any schedules attached hereto, constitutes the entire agreement of the Parties hereto with respect to the subject matter hereof and supersedes all prior negotiations, agreements, and understandings, both written and oral, between the Parties. No amendment, modification or waiver in respect of this Agreement shall be effective or binding upon the Parties unless made in writing and signed by all the Parties


2.9.2. Notices


All notices, requests, and other communications under this Agreement shall be in writing and shall be deemed to have been duly given when delivered personally or sent by mail or email to the addresses as determined by the Parties.


2.9.3. Counterparts


This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which taken together shall constitute one and the same agreement.



IN WITNESS WHEREOF,
the Parties have caused this Agreement to be executed by their duly authorized representatives as of the date first above written.

COMPANY A COMPANY B
By: ________________________ By: ________________________
Name: Name:
Title: Title:

COMPANY C COMPANY D
By: ________________________ By: ________________________
Name: Name:
Title: Title:

GOVERNMENT
By: ________________________
Name:
Title:

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Sections of a Production Sharing


In this Production Sharing, you will see the following sections:

  1. Definitions and Interpretation
  2. Terms and Conditions


Going indepth - Analysis of each section:

  1. Definitions and Interpretation : This section provides the meaning of specific terms used throughout the agreement. It helps to clarify the understanding of the terms and ensures that all parties are on the same page. For example, "Hydrocarbons" are defined as any mixture of hydrocarbons in solid, liquid, or gaseous state, including crude oil and natural gas.

  2. Terms and Conditions : This section outlines the main provisions of the agreement, including the rights and obligations of the parties involved. It covers various aspects such as the scope and grant of rights, participating interests and joint venture formation, allocation of production, costs, and revenues, environmental compliance, liability and indemnification, governing law and dispute resolution, assignment, representations and warranties, and miscellaneous provisions. In simple terms, this section explains how the parties will work together, share responsibilities, and handle any issues that may arise during the exploration, extraction, and production of hydrocarbons.

Here's a summary of the key points in each subsection of the Terms and Conditions:

  1. Scope and Grant of Rights: The government grants the parties exclusive rights to explore, extract, and produce hydrocarbons in a specific area. The parties must follow the agreement's terms and applicable laws.

  2. Participating Interests and Joint Venture Formation: The parties' interests, rights, obligations, and liabilities are outlined, and they must form a joint venture to carry out the activities.

  3. Allocation of Production, Costs, and Revenues: This subsection explains how the production, costs, and revenues will be shared among the parties based on their participating interests.

  4. Environmental, Health, and Safety Compliance: The parties must conduct their activities responsibly and in compliance with environmental laws and regulations, taking measures to prevent harm to the environment.

  5. Liability and Indemnification: Each party is responsible for any loss, damage, or liability caused by their negligence or misconduct and must indemnify the other parties and the government.

  6. Governing Law and Dispute Resolution: The agreement is governed by the laws of the United States, and any disputes will be settled through arbitration in New York, USA.

  7. Assignment: Parties cannot transfer their rights or obligations under the agreement without the consent of the other parties and the government.

  8. Representations and Warranties: Each party confirms that they have the legal right and authority to enter into and perform the agreement without conflicting with other agreements they are part of.

  9. Miscellaneous: This subsection covers various additional provisions, such as the entire agreement, notices, and counterparts, which help ensure the agreement's smooth execution and communication among the parties.

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