What is the Production Sharing Contract (PSC) commonly used in the international oil industry, and what are its key features and critical negotiation points?

Answer 1 A preliminary response: Petroleum contracts are a category of agreements essential to overseas oil and gas mergers and acquisitions—and are also highly specialized. It is no exaggeration to say that mastery of petroleum contracts, to a certain extent, determines the success or failure of overseas oil and gas M&As. Petroleum contracts include various types of licenses, Production Sharing Contracts (PSCs), Service Contracts, and joint-venture-type agreements based on oil and gas operations. Through these petroleum contracts—or enabling instruments—the host government (or its national oil company) grants exclusive exploration rights (and subsequently development and production rights) to foreign investors possessing advanced technology and ample capital. Internationally, petroleum fiscal regimes generally fall into two major categories: the Royalty System and the Production Sharing Contract (PSC) system. From a commercial and economic perspective, these two systems differ little in essence—both fundamentally concern how output benefits are allocated between the resource-holding country and the foreign contractor. From a legal standpoint, however, they differ significantly. Under the royalty system, the host government issues exploration or mining licenses to the foreign contractor, who must pay various royalties and taxes to the host state. The host government does not participate in petroleum operations nor share in the produced hydrocarbons; it receives no direct benefit from development, production, or sales. Under a PSC, the foreign contractor holds no mineral rights. Instead, it invests capital and technology to explore the contract area pursuant to an agreement with the host government or its national oil company. Upon achieving a commercial hydrocarbon discovery, the contractor recovers its investment and earns profit by receiving a share of the produced oil and gas—a contractual entitlement granted by the host government or national oil company. In this arrangement, the host government or national oil company participates directly in petroleum operations, exercises direct control and oversight, and enjoys direct benefits from development, production, and sales. Beyond these two main fiscal regimes, Service Contracts have evolved. Such contracts are typically employed in resource-rich countries like Iraq and Iran. Their defining feature is that the foreign contractor invests capital and technology for field development and production, while all output belongs to the host state; the contractor receives cost recovery and remuneration as stipulated in the contract—often paid in kind (i.e., physical hydrocarbons). Service contracts are also applied to mature field redevelopment—for instance, Enhanced Recovery Contracts (ERCs), under which contractors receive compensation and cost recovery only on incremental production above the field’s baseline output. Beyond standard service contracts, Risk Service Contracts require the foreign contractor or service provider to bear certain risks—for example, if the field fails to yield economically viable production, or if a mature field fails to achieve the targeted incremental output, the contractor may forfeit its remuneration entirely. Other petroleum contracting models include Joint Ventures (JVs), through which entities jointly hold mineral licenses.

What does Petrobras’ CEO’s prediction—that Brazil’s oil production will peak by 2034 and then plateau—imply?

Answer 2 *Major International Oil Companies: Key Investors in Brazil’s Oil & Gas Sector* It is not only Petrobras investing heavily in Brazil’s oil and gas sector. As Latin America’s largest economy and top oil producer, Brazil is attracting intense interest from major international oil companies. Their substantial financial resources will ensure continued robust investment growth in Brazil’s thriving offshore oil industry. Among them, Shell has become a major player in Brazil’s offshore oil and gas sector over the past decade. Currently, Brazil contributes approximately 15% of Shell’s global production, and the company ranks as Brazil’s second-largest oil producer—accounting for nearly 11% of the country’s crude output. At the end of May 2025, Shell announced the official start-up of its Mero-4 project in the pre-salt Santos Basin. Previously, the FPSO ‘Alexandre de Gusmão’ had been connected to 12 wells at the project site; the vessel has a rated daily capacity of 180,000 barrels of crude oil. Shell holds a 19.3% operating interest in the Mero field, while Petrobras—acting as operator—holds 38.6%; the remaining 42.1% is held by several energy companies, including TotalEnergies (19.3%), China National Petroleum Corporation (CNPC) (9.65%), and China National Offshore Oil Corporation (CNOOC) (9.65%). In March 2025, Shell also disclosed its final investment decision for the ‘Gato do Mato’ project—a pre-salt hydrocarbon discovery located in Brazil’s prolific Santos Basin. Shell holds a 50% operating interest and serves as operator; its partners Ecopetrol (Colombia’s national oil company) and TotalEnergies hold 30% and 20%, respectively. The project targets 370 million barrels of recoverable oil and is scheduled to commence production in 2029, supported by an FPSO with a daily capacity of 120,000 barrels. French energy giant TotalEnergies holds 11 petroleum production licenses in Brazil, four of which carry operatorship rights. It ranks as Brazil’s third-largest oil producer, contributing nearly 4% of the country’s oil output, and continues investing actively in Brazil’s offshore sector—particularly in pre-salt resource development. As noted above, TotalEnergies is involved in both the Mero-4 and Gato do Mato projects, and expects to raise its daily oil production in Brazil to 200,000 barrels by the end of 2026. Equinor—the Norwegian state-controlled international oil major—also operates in Brazil and considers the country a core source of production growth. In June 2025, Equinor announced its successful bid for block S-M-1617 in the Santos Basin during Brazil’s fifth permanent licensing round. Additionally, the company is advancing equity development across multiple oil and gas projects, whose completion will further boost Brazil’s overall hydrocarbon output. *Brazil’s oil and gas sector is projected to attract USD 122 billion in investment before 2029.*

Petrobras signs production-sharing deals for Ivory Coast exploratory blocks

Sep 17, 2026

Brazilian oil giant Petrobras signed production-sharing contracts with Ivory Coast for eight offshore blocks, securing a 90% stake to replenish reserves via African frontier exploration.

reuters

Petrobras signs production-sharing deals for Ivory Coast exploratory blocks

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