One of the challenges facing governments and the international oil industry that wish to cooperate in exploiting petroleum resources is the availability of a fiscal or contractual system that is attractive to the oil companies, but one that also adequately protects national interests. Both the host government and the investing oil company have their own concerns to consider, and it is essential that a balance exists between the competing interests. For the host government, the best way to achieve such a balance is to tailor contractual terms to outcomes based on economic modeling. Economic models constructed to represent various exploration and production scenarios reveal outcomes that could be expected under envisioned contractual terms. Depending on the results, the contractual terms can then be modified or tailored to give what is considered to be equitable economic returns for the state and the investor, based on international norms. Other concerns, e.g., promoting exploration and development of small reserves, can also be addressed in economic modeling. Likewise, a contractor interested in bidding for upstream opportunities should run economic models of its own to judge the attractiveness of the contract. If the fiscal terms were conceived judiciously, a deal becomes likely.


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