Johnston, DavidTordo, SilvanaJohnston, Daniel2012-03-192012-04-042012-03-192012-04-042009-11-01978-0-8213-8167-0https://hdl.handle.net/10986/2701https://hdl.handle.net/10986/5954Petroleum has become an integral part of today's global economy and a key component of many national economies. Hence, the presence of petroleum in meaningful quantities can have important economic, developmental, and strategic consequences for a country. While a country's petroleum resource base is a gift of nature, translating this resource into saleable crude oil requires investment and effort. Whether governments choose to invest directly or allow private investors to do so, their primary concern should be to maximize the social benefits derived from the exploitation of the resource base. In practice, however, defining what constitutes maximum social welfare is essentially a political question, which helps explain the variety of objectives pursued by governments over time. In order to exploit their natural resources efficiently, many governments rely on private oil companies. Governments have a challenging task in deciding which companies should be awarded the exclusive rights to explore, develop, and produce their resources, and on what conditions such rights should be awarded. There is little empirical documentation on the design and relative effectiveness of alternative systems for the allocation of petroleum exploration, development, and production (E&P) rights and their policy implications. This paper analyzes the available evidence on the advantages and disadvantages of various practices used by petroleum producing countries to allocate petroleum E&P rights, and draws conclusions about the optimal design of E&P allocation systems.CC BY 3.0 IGOACCESS TO INFORMATIONACCOUNTINGAFFILIATED ORGANIZATIONSAMORTIZATIONAUCTIONAUCTIONSBARGAININGBARGAINING POWERBIDBIDDERSBIDSBONDSBORROWINGBUYBACKSCAPITAL ALLOCATIONCAPITAL INVESTMENTCASH FLOWSCASH OUTFLOWCASH PAYMENTCLIMATE CHANGECOLLUSIONCOMPETITIVE BIDDINGCOMPETITIVENESSCONCESSIONCONSUMPTION RATESCONTRACT RENEGOTIATIONCORPORATE INCOME TAXCORPORATE INCOME TAXESCORPORATE TAX RATECREDIBILITYCRUDE OILDEBTDEPOSITSDEVELOPING COUNTRIESDEVELOPMENT POLICYDISCOUNT RATEDOMESTIC MARKETDRILLINGDUTCH AUCTIONECONOMIC CONDITIONSECONOMIC EFFICIENCYECONOMIC GROWTHECONOMIC RENTECONOMIC RENTSECONOMIC RISKSECONOMICSENERGY INFORMATION ADMINISTRATIONENVIRONMENTAL PROTECTIONEQUIPMENTEXCHANGE COMMISSIONEXCHANGE RATEEXCLUSIVE RIGHTSEXPECTED VALUEEXPENDITUREEXPENDITURESEXPLORATION DRILLINGEXPLORATORY WELLEXTERNALITIESEXTRACTIONFINANCIAL RISKSFISCAL ARRANGEMENTSFISCAL INCENTIVESFISCAL REGIMEFISCAL SYSTEMFISCAL TERMSFOREIGN EXCHANGEGAS COMPANYGAS EXPLORATIONGAS FIELDGAS FLARINGGAS FLARING REDUCTIONGAS PRICEGAS PRICESGAS RESERVESGAS RESOURCESGEOLOGICAL SURVEYSGEOPHYSICAL DATAGLOBAL ECONOMYGLOBAL MARKETGOVERNMENT REVENUEGOVERNMENT REVENUESGOVERNMENT · SUPPORTSHOST COUNTRYHOST GOVERNMENTHOST GOVERNMENTSHYDROCARBON EXPLORATIONHYDROCARBON LAWHYDROCARBONSIMAGING TECHNOLOGYIMPERFECT INFORMATIONINCOME TAXINCOME TAXESINEFFICIENCYINFORMATION ASYMMETRIESINFORMATION ASYMMETRYINFRASTRUCTURE INVESTMENTSINTANGIBLEINTERNATIONAL BANKINTERNATIONAL MARKETINVESTINGINVESTMENT AGREEMENTSINVESTMENT ALLOWANCESINVESTMENT DECISIONSINVESTMENT ENVIRONMENTJOB CREATIONJOINT VENTURESLACK OF TRANSPARENCYLANDOWNERLEVEL OF RISKLIQUID PETROLEUMLIQUID PETROLEUM GASLNGLOCAL INFRASTRUCTUREMACROECONOMIC EFFECTSMACROECONOMIC POLICIESMACROECONOMIC STABILITYMARKET CONDITIONSMARKET MECHANISMSMARKET PARTICIPANTSMARKET PRICESMARKET SEGMENTATIONMARKET STRUCTUREMATURITIESMATURITYMINERALMINISTRY OF PETROLEUMMONETARY FUNDNATIONAL ECONOMIESNATIONAL OILNATURAL GASNATURAL RESOURCESNPVOILOIL AND GASOIL COMPANIESOIL COMPANYOIL INDUSTRYOIL PRICEOIL PRICE CHANGESOIL RECOVERYPETROLEUMPETROLEUM COMPANYPETROLEUM DEVELOPMENTPETROLEUM EXPLORATIONPETROLEUM GEOLOGISTSPETROLEUM GEOLOGYPETROLEUM PRODUCINGPETROLEUM PRODUCING COUNTRIESPETROLEUM RESERVESPETROLEUM RESOURCESPETROLEUM SECTORPETROLEUM SHARING AGREEMENTPETROLEUM SHARING CONTRACTPOLITICAL RISKSPORTFOLIOPOTENTIAL INVESTORSPRICE CHANGESPRIVATE INVESTORSPRODUCTION COSTSPRODUCTION SHARING CONTRACTSPROFIT SHARINGPROFITABILITYRATE OF RETURNRATES OF RETURNREFINERIESREFINERYREGULATORY REFORMRENTSRESERVERESERVESRESERVOIRRESERVOIR CHARACTERISTICSRESERVOIRSRESOURCE ALLOCATIONRETURN ON INVESTMENTRETURNSRISK AVERSERISK MANAGEMENTRISK PREMIUMRISK PROFILERISKY BUSINESSROYALTYROYALTY RATESSECONDARY MARKETSSHAREHOLDERSSOCIAL BENEFITSSURPLUS VALUETAXTAX PAYMENTSTAX REGIMETAX REVENUETAXABLE INCOMETAXATIONTENDERSTIME VALUE OF MONEYTRANSPARENCYVALUATIONWEALTHWorld Bank10.1596/978-0-8213-8167-0