Designing and Modeling Value-Added Production Sharing Contracts (VAPSC): From Offshore Gas to LNG in Lebanon

This article presents the value-added production-sharing contract (VAPSC), an extension of traditional production-sharing contracts (PSCs), which encompasses raw materials production, subsequent processing, and the final ‘sharing’ of goods. Developing countries often face challenges in oil and gas exploration, production, and sector development, necessitating new collaborative frameworks between governments, industries, and international companies. The study justifies the economic terms of VAPSC that align with Lebanon’s national regulations, focusing on offshore gas production and the subsequent production and sale of liquefied natural gas (LNG). The research evaluates VAPSC application in Lebanon through a case study involving offshore gas field development, LNG plant construction, and consequent LNG-sharing. Results demonstrate the VAPSC potential to promote petroleum sector development by generating added value for both the state and society, as well as economic efficiency for the contractor. The research contributes to contract theory by introducing VAPSC as a novel framework for integrating hydrocarbon extraction, subsequent processing, and value-added product distribution, offering a replicable model for other resource-rich developing nations. The main findings include the design of a new type of contract—VAPSC—along with an economic-mathematical model for optimizing government-investor partnerships and the definition of key contractual terms.