Production Sharing Contract (or Agreement)

Oil contract under which the oil that is produced is shared between the state and the oil company. The company is entitled to a predetermined percentage of any oil produced to recoup its exploration and production costs; this is known as cost oil. The remaining production, known as profit oil, is shared between the state and the oil company (roughly 82% and 18% respectively). The state sets the production rate. This type of contract is the subject of hard bargaining, particularly when costs are being negotiated.