Rules for preparing the Work Program and Budget of the Production Sharing Agreement

The most difficult issue for the investor is the formation of an annual work plan for the implementation of the Work Program and Budget (hereinafter referred to as the Program) of the Production Sharing Agreement.

The content of the Program must comply not only with the requirements of the Agreement, but also with the provisions of the legislation, according to which the Program must specify the volumes and types of financing, technological equipment that the Investor is expected to use on the site.

International standards for planning projects and programs in the oil and gas sector (ISO 29001, ISO 9001:15) recommend that developers use the Plan-Do-Check-Act (PDCA) cycle when planning projects, which allows for rational use of project resources, as well as taking action on opportunities for improvement.

To achieve the main goals of the program budget planning, the following proportions are usually observed: 

a) expenses to 20% for financial support of the Program management; 

b) expenses related to the impact of risks of up to 15%; 

c) expenses for the development of technical projects of 15%; 

d) expenses for the implementation of the Program tasks of 50%; 

e) other expenses in the amount of the balance.

Often a difficult issue for an Investor is the problem of categorizing expenses by groups and expense items. 

The two concepts above are usually differentiated in meaning and have different legal natures.

The expense item calculates the type of work by the amounts in the estimate of the Production Sharing Agreement, while the expense category, in general, explains to the Investor the generic name of the group of works on hydrocarbon production.

That is, the Production Sharing Agreement requires the Investor to submit, as part of the Annual Work Program and Budget, an estimate with a breakdown by cost item, since it is by cost items that it is possible to calculate the amount of cost overruns.