The fundamental legal difference between a PSA and a license is that the relationship between the IOC and the state under a PSA is that of a contractor or service provider. Under a PSA, the state always remains the owner of the resources in the ground–although the contract establishes the agreed compensation that the IOC will receive for services rendered, part or all of which will be in hydrocarbon revenues. The IOC will therefore have a contractual right to be delivered a portion of the hydrocarbon production which becomes available (usually after treatment and processing) at the point of transfer. In other words, the PSA is a service contract with payment in kind. While in practice this arrangement provides the state with the same share of the hydrocarbons extracted that the tax and royalty regime would allocate, maintaining formal ownership of the hydrocarbons has been an important factor for countries keen on protecting their sovereignty over their national resources. This aspect appealed to the growing nationalist cultures of host states in the post-colonial era.
– Geoffrey Picton-Turbervill (ed), Oil and gas: a practical handbook (Globe Law and Business, 2009), p35.
The fundamental legal difference between a PSA and a license