Papua New Guinea to Introduce Production Sharing Contract (PSC) Framework

 The Government of Papua New Guinea, under the leadership of the Marape/Russo Government, is undertaking a landmark reform of its petroleum sector by transitioning from the long-standing Concession-based system to a modern Production Sharing Contract (PSC) model.

Following a directive from the National Executive Council (NEC), which has approved the PSC Policy White Paper, the National Petroleum Authority (NPA) is spearheading this transformative initiative.

The NPA’s Role in the Transition

As the regulator of PNG’s petroleum sector, the National Petroleum Authority has been tasked by the government to lead a State Working Team. The NPA will guide the consultation process with all industry and public stakeholders, using the approved White Paper as the foundation for drafting new PSC legislation.

The NPA will be responsible for the full implementation and administration of the new PSC regime, ensuring a transparent and efficient framework for all future petroleum agreements.

What is the Production Sharing Contract (PSC) Model?

 The PSC is a globally recognized contractual model designed to ensure a fair and equitable partnership between a host country and its investment partners. Key features include:

• State Sovereignty: The State of PNG retains sovereign ownership of all petroleum resources.
• Risk and Cost: The contracted petroleum company bears 100% of the exploration and development costs and risks.
• Cost Recovery: The contractor is entitled to recover its invested capital from the sale of “Cost Oil/Gas” once production begins.
• Profit Sharing: The remaining “Profit Oil/Gas” is then shared between the State and the contractor at a negotiated percentage.

A Fairer Framework for the Future

This strategic shift to a PSC model is designed to align PNG with international best practices. It aims to secure earlier and more reliable revenue streams for the State and landowners, enhance transparency in cost oversight, and provide a clear and competitive framework that will continue to attract quality international investment.

The NPA is committed to ensuring a smooth and collaborative transition. We will be engaging with all stakeholders in the coming weeks to discuss the details of the PSC Policy White Paper.