There is a vast amount of literature on evaluating the distortionary effects of upstream oilcontracts on the optimal production path. However, in most studies, the focus is on theoperator’s perspective and the hosting country (HC) is neglected. Furthermore, in few studies,engineering aspect of the field is considered. This paper aims at defining the neutral path andunderscoring the differences between the owner’s path and that of the operator (OP). Paperalso shows which contractual element has the biggest distortionary effect on the optimal path.To do that, we apply dynamic optimization as the methodology and optimal control theory asthe solution. We specify the functions and assign a range of values for parameters and find threedifferent paths. Results show that under certain conditions, the rate of production in neutralcase is higher than that of OP and HC and cost recovery factor has the biggest effect on theoptimal path.
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