A Comparative Study of Licensing and Concession Systems
Edited by Tina Hunter
Chapter 2: Access to petroleum under the licensing and concession system
Sound petroleum regulatory frameworks should perform a number of functions. They should encourage the responsible, metered development of petroleum resources for the benefit of both the state and all members of the host community. They should also encourage the participation of international oil companies (IOCs) to develop the resources, but not allow the IOCs to control the development. A regulatory framework needs to be flexible enough to respond to perceived issues relating to global energy supply. Long-term global security of petroleum supply depends upon whether the investment needed to expand supply capacity is forthcoming. For example, an estimated $4 trillion in investment was required from 2004 to maintain and expand petroleum capacity. If a petroleum regulatory framework is not flexible to respond to these needs, the host state is likely to suffer, especially if the framework is rigid and incapable of responding to changes in global conditions such as supply, price and security. Considering the finite nature of petroleum resources, and the necessity for petroleum in modern society, regulatory systems have been developed and implemented in petroleum producing nations. There are two classes of petroleum regulatory systems, generally divisible by the granting of title and by taxation arrangements. The first is contractual systems, dominated by production sharing contracts (PSCs), and used almost exclusively in developing and emerging nations. The second is the licensing and concession system (LCS) which is primarily utilized by developed nations with strong legal structures and institutions.
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