Production Sharing Contracts: Factors Influencing Petroleum Joint Ventures Performance

Production sharing contracts (PSC) are a pervasive fact of economic life in developing countries. They involve a government-contractor relationship with the aim of exploring, developing and producing oil within a Joint Venture environment. This public-private partnership form of collaboration often entails conflict in managing the Joint Venture because of the different strategic objectives between its partners. The rights of the host government and the obligations of the foreign contractor are central in a PSC. This proposes numerous complexities and dilemmas in managing the Joint Venture. Joint Ventures although being an increasingly common direction of corporate strategy over the past two decades have accentuated the problem of measuring the business performance. Joint Ventures performance determinants are problematic in the sense that both parties find it difficult to distinguish between bad luck and poor performance. The major difficulty in managing the performance of a Joint Venture lies in the confusion of how to identify and measure the performance. The controversy often stems from the lack of clarity of what a determinant of performance is. The development of key performance factors and indicators receives a considerable attention as being a powerful management tool. This study will present a conceptual framework of the performance management determinants of non-equity petroleum Joint Ventures under a PSC contractual agreement. The proposed conceptual framework will contribute to the academic knowledge in managing non-equity petroleum Joint Ventures, as well as the contribution to management practitioners in managing oil business within the oil production sharing contract system.