Comparative Analysis of the Financial Regime of New Petroleum Contracts, Known as IPC, and Buyback Trade in Terms of Costs

One of the key components of contracts is the associated charges. This paper studies types of costs in buyback and the new petroleum contracts for the first time. Buyback contracts are financially comprised of capital expenditure, non-capital expenditure, project’s financing cost, operating cost and remuneration. The most important difference between the new petroleum contracts and the buyback contracts is the longer duration of the new petroleum contracts as well as the presence of the contractor during the period of operation. The financial structure of these contracts is comprised of government revenue and oil cost and the oil cost is comprised of direct capital expenditure, indirect cost, cost of money, operating cost and remuneration. Unlike the buyback contracts, direct capital expenditure in the new petroleum contracts has no specified ceiling from the outset and it is determined on an annual basis in consideration of the behavior of reservoir and market conditions (inputs). Cost of money has been provisioned in the new petroleum contracts for project financing and this item is defined in the buyback contracts as “bank charge”. In contrast to the buyback contracts in which all direct and indirect expenses incurred by contractor were subject to interest, in the new petroleum contracts, only indirect expenses and delay in repayment of expenses on due date are subject to interest.