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Cost oil, Profit oil

If a company finds oil in an area that it is exploring, it is usually entitled to recover the costs of its investment from sale of the oil it discovers.  Eg, if the company spends $100 million on exploration and production, and finds oil worth $500 million, it is entitled to recover its $100 million from total sales of the oil; this is called “cost oil.”  The remaining $400 million is called “profit oil” and is divided between the company and the government in accordance with the Production Sharing Agreement (PSA) they reached.  The PSA may outline a timetable for the company’s recovery of “cost oil”– for example, stipulating that during the early years of production the company cannot take all of the oil as “cost oil” but that a certain percentage of it must be counted as “profit oil,” to ensure that the government does not have to wait for years before seeing any share of the profits.  (See also Production Sharing Agreement.)

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  • Corporate social responsibility (CSR)
  • Cost oil, Profit oil