Petroleum resource development policies: Implications of the Southeast Asian contractual framework

The property rights arrangements covering petroleum resource development in Southeast Asia imply certain economic responses on the part of the firms contracting to develop such resources. The data indicate that the supply of such petroleum reserves are sensitive to such arrangements. The structure of the industry also suggests that decisions to supply such reserves are generally made within a context that extends beyond the boundaries of the region. Analyses of the specific contractual terms governing cost recovery and production bonuses suggest, however, that, where the goal of the host country is accelerated development of its petroleum resources, there may be underinvestment in the exploration and development of such resources, especially in high-risk areas. Thus, these contract provisions have serious implications for the supply of petroleum reserves in Southeast Asia. They suggest that a better understanding of firm behavior may be required to allow a host government to develop strategies that will optimize its supply of reserves as well as the benefits it wants to capture from the development of its resource endowments.