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When it comes to the terms used in the oil and gas industry, two phrases that are commonly used are Concession Agreement and Production Sharing Agreement. Both are meant to define a legal agreement between a government or a state-run entity and an oil and gas company, but they differ in many ways.

A Concession Agreement is a legal binding document that grants an oil and gas company the right to find and produce oil, gas or other hydrocarbons in a specific area. In this agreement, the oil and gas company becomes the owner of the hydrocarbons and is allowed to operate and maintain all relevant infrastructure like drilling rigs and pipelines. The company is also required to pay fixed royalties, taxes, and fees for the duration of the agreement.

On the other hand, a Production Sharing Agreement (PSA) is a contract between a government or state-owned entity, and an oil and gas company, where the company is responsible for financing and executing exploration and production activities on behalf of the government or entity, and share profits from the sale of hydrocarbons. In this agreement, the company does not own the oil or gas and is required to share a certain percentage of the profit with the government or the state-owned entity.

One of the key differences between the two agreements is the distribution of risk. In a Concession Agreement, the oil and gas company bears the risk of exploration and production, whereas in a Production Sharing Agreement, the government or the state-owned entity bears the exploration and production risks. This is due to the fact that the PSA is designed to encourage oil and gas companies to invest in countries with high exploration and production costs and risks.

Another difference is the level of financial commitment. In a Concession Agreement, the oil and gas company is responsible for financing and executing all exploration and production activities, whereas in a Production Sharing Agreement, the government or state-owned entity is usually responsible for financing initial exploration activities.

In conclusion, both Concession Agreements and Production Sharing Agreements are essential contracts for oil and gas companies and governments. While they are similar in some respects, they differ in key aspects like ownership, risk distribution, and financial commitments. As such, it`s important for both parties to fully understand each agreement and its implications before entering into a contract.

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