From the point of view of the host country, service contracts aim to eliminate undesirable aspects of production-sharing contracts, including the right of contractors to produce oil, cumbersome accounting procedures and the need to constantly review the allocation of “oil costs” to encourage operators to continue their exploration activities. Some of the countries where oil companies operate are their services, which are based on pure service contracts, as follows; JVs may, on the whole, be categorized into two categories and not classified as legal. In the context of registered enterprises, the parties create a social society, headquartered in the host state, managed by a body jointly represented by both parties. Companies in the public domain operate solely on the basis of contractual agreements, without any legal entities being created. Concession or licensing agreements have evolved considerably since their introduction in the early 1900s as unilateral treaties, when many resource-rich nations were dependencies, colonies or protectorates of other states or empires. The modern form of such agreements often allows an oil company to explore, develop, sell and export exclusive rights, oil or minerals from a given territory, for a specified period of time. Companies compete by offering offers, often coupled with signing bonuses, to acquire licenses for such rights. This type of agreement is widely used around the world and is used in countries as diverse as Kuwait, Sudan, Angola and Ecuador. In accordance with the Philippine Risk Service Contract, the contractor receives an Incentive to Participate (FPIA) premium in the Philippines as a service fee. The contract has a ceiling of 70% with a profit share of 60/40% in favor of the government. The contractor`s share of profits is not taxable. However, taxes are paid on the government`s share in profit oil. Of course, in addition to companies that provide capital that a government might not otherwise have readily available to them, they also provide all the necessary expertise and technological instruments.
The advantage of the service agreement is that the external company is supposed to provide a service and, as with any service company, the goal should be to ensure customer satisfaction. Since the service agreement determines the company`s remuneration, the focus may be more on the work to the satisfaction of the host country than on the company`s own enrichment.