Glossary:Risk service contract

These agreements are very similar to the production-sharing agreements with the exception of contractor payment. With a risked-service contract, the contractor usually receives a defined share of revenue rather than a share of the production. As in the production-sharing contract, the contractor provides the capital and technical expertise required for exploration and development. If exploration efforts are successful, the contractor can recover those costs from the sale revenues and receive a share of profits through a contract-defined mechanism. Under existing SEC regulations, it may be more difficult for the contractor to justify reserves recognition, and special care must be taken in drafting the agreement. Provided that the requirements for reserves recognition are satisfied, reported reserves are typically based on the economic interest held or the financial benefit received. (SPE)