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  • Production Sharing Agreement (PSA)

    A contract between an oil company and a government, outlining the terms on which any discoveries of oil and gas will be shared.

  • Profit oil

    Oil production shared between company and government once investment is recovered.

  • Publicly listed, IPO

    A company is “publicly listed” if its shares are bought and sold publicly on a stock market/stock exchange. It is owned by the shareholders (who may include both individual shareholders and “institutional investors” such as pension funds), and managed by a Board of Directors elected by an Annual General Meeting.  Private businesses, even when they are quite large, can operate lawfully without listing on a stock exchange.  Public listing, however, is a useful way for a growing company to raise capital (at first through an “initial public offering” [IPO] that offers shares in the company for sale, and later through the issue of further shares), and most of the world’s larger companies are publicly listed.  Transparency requirements for publicly listed companies are higher than for wholly private companies, because the publicly listed companies are required by law to disclose financial and other information in reports to shareholders and government authorities.

  • Rents, rent-seeking

    Economic “rents” are profits which are higher than would be expected in a situation of theoretically perfect competition.   (For example, if a company or government has a monopoly over a particular resource, they can command a higher price for it.) “Rent-seeking” describes the behaviour of individuals and businesses who try to get special rights over the resource, rather than adding value to it or creating new wealth.  (That is, investing in getting a bigger slice of the cake rather than doing anything to make the cake bigger.)

  • Royalties

    When a company starts pumping oil it pays a “royalty” (in effect, a tax) on the amount of oil produced. This is usually a relatively small percentage of production, and the government will be entitled to an addition share of the “profit oil.” (See also, “Cost Oil, Profit Oil”)

  • Signature bonus

    A cash payment made by a company to a government when they sign an exploration or production contract.

  • Stabilisation clause

    Clause in a Production Sharing Agreement or other contract with government that reduces the risk to the contractor (private company) by protecting the company from future changes in, eg, tax laws or environmental regulations and standards.

  • Upstream, Downstream, Midstream

    “Upstream” refers to the exploration and extraction of oil and gas.  “Downstream” generally refers to the refining, storage, transport and retailing of oil and gas products.   Some people describe refining and petrochemical processes as “midstream,” and use “downstream” to refer only to marketing and retailing of finished products.

  • Venture capital

    Money invested in ventures that can bring large (and sometimes quite quick) profits but which also involve high risk.

  • Wildcatter

    A (usually small) company that prospects for oil in areas where there has been little or no previous exploration.  If wildcatter companies strike oil they usually sell their rights over it to bigger players and move on.