A Comparative Study of Licensing and Concession Systems
New Horizons in Environmental and Energy Law series
Edited by Tina Hunter
Chapter 12: Comparison of access to petroleum in developed and developing licensing and concession systems
The licensing and concession system (LCS) has been developed by many states to interact with and govern the conduct of participating oil companies, and to maximize financial gains. The LCS is defined as a system of petroleum regulation where a license is granted over a ‘concession’, or area. That license grants proprietary rights to the license holder, which are often also imbued as contractual rights between the participating parties through agreements such as joint operating agreements (JOAs). Unlike the production sharing contract (PSC), the concession system assumes that the operating oil companies obtain a license from the state on certain terms and conditions, most of which are fixed by legislation and some of which are negotiated case by case between the state and the relevant oil companies. An important characteristic of the concession system is that, since legislative power is a state prerogative, the state remains at considerable liberty to modify at any time those terms and conditions that are not negotiated but fixed by legislation. The LCS grants specific contractual and proprietary rights to the participants who have been awarded petroleum licenses. Although the LCS is used in many countries to regulate the exploitation of petroleum, the level of government control over petroleum activities differs. Furthermore, there are two main recognizable systems of regulation in licensing and concession systems – the long established ‘North American’ model and the ‘North Sea’ model, developed by the UK and Norway when exploiting the petroleum resources in the North Sea.
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