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• Supplement | HBS Case Collection | 2013

  The Kashagan Production Sharing Agreement (PSA), Spreadsheet Supplement

  Benjamin C. Esty

  Citation:

  Esty, Benjamin C. "The Kashagan Production Sharing Agreement (PSA), Spreadsheet Supplement." Harvard Business School Supplement 213-726, May 2013.

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• Case | HBS Case Collection | 2013

  The Kashagan Production Sharing Agreement (PSA)

  Benjamin C. Esty and Florian Bitsch

  When discovered in the 1990s, the Kashagan oil field was the second largest oil field in the world. The project sponsors (equity investors) signed a 40-year production sharing agreement (PSA) with the Kazakh government in 1997, with the expectation the field would be developed at a total cost of $57 billion and would be pumping oil by 2005. Unlike most contracts in the energy industry, the Kashagan agreement was a "flexible PSA" meaning the contractual terms—the allocation of risks and returns—depended on ex post realizations of such things as capital costs and profitability. The parties incorporated contingencies into the contract to make it fairer and more flexible, and to ensure it remain viable over the project's 40-year life.

  Due to a combination of problems and challenges, the project was still not done in mid-2007. At that time, the sponsors, led by the Italian energy company ENI, announced the project would not be completed until 2010 and the total cost was likely to be $136 billion. Although oil prices had risen dramatically between 1997 and 2007, thereby making the project worth considerably more, the Kazakh government indicated its desire to renegotiate key provisions of the contract. The sponsors had to decide whether to renegotiate the contract and, if so, which parts.

  Keywords: negotiation; contracts; oil ＆ gas; project finance; Kazakhstan; Asia; ENI; risk management; economic development; capital budgeting; international finance; valuation; project management; expropriation; product sharing agreement; Negotiation; Agreements and Arrangements; Development Economics; Energy Sources; Capital Budgeting; International Finance; Valuation; Joint Ventures; Energy Industry; Asia; Kazakhstan; Italy;

  Citation:

  Esty, Benjamin C., and Florian Bitsch. "The Kashagan Production Sharing Agreement (PSA)." Harvard Business School Case 213-082, May 2013.

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• Working Paper | HBS Working Paper Series | 2013

  Hidden Structure: Using Network Methods to Map System Architecture

  Carliss Y. Baldwin, Alan MacCormack and John Rusnak

  In this paper, we describe an operational methodology for characterizing the architecture of technical systems and demonstrate its application to a large sample of software releases. Our methodology is based upon network graphs and allows us to identify and define three fundamental architectural patterns, which we call core-periphery, multi-core, and hierarchical. We apply our methodology to a sample of 1,286 software releases from 17 applications and find that 70% to 80% of these systems possess a core-periphery architecture under our classification scheme. This type of architecture is characterized by having a single dominant cyclic group (the Core) that is large relative to other cyclic groups and above a threshold with respect to system size. We find that the size of the Core varies widely, even for systems that perform the same function. These differences appear to be associated with different models of development—open, distributed organizations tend to develop systems with smaller Cores, while closed collocated organizations tend to develop systems with larger Cores. Our findings represent a first step in establishing some "stylized facts" about the fine-grained structure of large, real-world technical systems.

  Citation:

  Baldwin, Carliss Y., Alan MacCormack, and John Rusnak. "Hidden Structure: Using Network Methods to Map System Architecture." Harvard Business School Working Paper, No. 13–093, May 2013.

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