...In order to exploit their natural resources efficiently, many governments rely on private oil companies. Governments have a challenging task in deciding which companies should be awarded the exclusive rights to explore, develop, and produce their resources, and on what conditions such rights should be awarded. There is little empirical documentation on the design and relative effectiveness of alternative systems for the allocation of petroleum exploration, development, and production (E&P) rights and their policy implications. This paper analyzes the available evidence on the advantages and disadvantages of various practices used by petroleum producing countries to allocate petroleum E&P rights, and draws conclusions about the optimal design of E&P allocation systems...There is no model allocation policy or system appropriate for all governments and all circumstances. Optimal design requires the definition of the economic, social, and political objectives that policy makers aim to achieve through the allocation of petroleum E&P rights. Some of these objectives may be more effectively achieved by combining allocation systems with other policy tools, in particular the fiscal system and market regulation. Therefore, it is important to ensure coordination and coherence among different policy tools. The state of the economy and its development needs are among the key drivers of countries’ allocation policies....by Silvana Tordo with the collaboration of David Johnston and Daniel Johnston (June 2009)
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