IVZ media thread, page-149

Some further info:

Profit sharing

PSAs also vary in how they deal with the profit shares. The share ratios could be set as fixed percentages for the lifetime of the PSA or as a progressive (or upwardly increasing) scale designed to increase the state's participation levels as the underlying project attains greater levels of daily production. Another way of creating a sliding scale of profit shares is the use of what is popularly known as an R factor (or Ratio factor). The R factor is arrived at by dividing the revenues from a project by the costs of that project, as below:



and then ascribing a particular profit share which is payable to the state to each band of the resultant R factor calculation.

At the start of the project, costs inevitably outweigh revenues and so the R factor will be zero or low. As the R factor increases (that is, as revenues increase, and increasingly outweigh costs in the later stages of the project), then the profit share in favour of the state increases. Thus the equilibrium of the original agreement is maintained, because as the net profitability of the IOC increases, the IOC's profit share reduces.



https://www.mondaq.com/uk/oil-gas-e...uction-sharing-agreements-practice-and-trends