Seyed Mohammadreza Seyednourani; Mohammad Alimoradi
Abstract
Pricing and risk sharing in oil and gas service contracts such as buyback has always been the most important challenges in the contracting design. Asymmetric information leads to agency costs such as moral hazard and adverse selection and the process of contracting is complicated. In this paper, by using ...
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Pricing and risk sharing in oil and gas service contracts such as buyback has always been the most important challenges in the contracting design. Asymmetric information leads to agency costs such as moral hazard and adverse selection and the process of contracting is complicated. In this paper, by using of agency theory, the process of buy-back contracts is modeled between the National Oil Company (NOC) and International Oil Company (IOC) with regard to moral hazard in case of risk averse and risk-neutral contractor. Finally, Mathematical modeling techniques are used to provide analysis of agency costs, and then optimal contract is extracted. An optimal contract is a contract in which the contractor will bear part of the increased costs. The results show that there is not corner solution for offering a contract, but the equilibrium relationship can be created between moral hazard, competition in the bidding and sharing the risk.
Ali Taherifard; Mostafa Salimifar
Volume 3, Issue 9 , January 2014, , Pages 151-174
Abstract
Risk sharing between international oil companies and hosting countries is one of the most important issues in oil contracts. This paper studies the risk sharing between National Iranian Oil Company (Government) and IOCs in three generations of buy back contracts. IOCs’ Risk in buyback contracts ...
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Risk sharing between international oil companies and hosting countries is one of the most important issues in oil contracts. This paper studies the risk sharing between National Iranian Oil Company (Government) and IOCs in three generations of buy back contracts. IOCs’ Risk in buyback contracts are cost risk, delay risk, failure to achievement to production profile and declining oil price. Government’s risks are no conservative production, declining oil production, cost risk and overestimated cost risk. This paper shows cost and failure to achievement to production profile risks for IOCs and no conservative production, declining oil production risks for government have more significant effects on projects profitability. In the first generation of buyback contract, there is not suitable mechanism to manage these risks. In the third generation of buy back contracts, main risks are significantly decreased and the expected risks of parties are declined. within the decreasing the risks of IOCs in third generation of buyback contracts, IOCs reward has been increased. It seems incompatible with risk and reward sharing in contracts.
