Risk:reward sharing contracts in the oil industry---the effects of bonus: penalty schemes. A.G. Kemp and L. Stephen. Energy Policy, February 1999, 27(2), 111--120.

An analysis is presented of the risk-sharing attributes of some typical types of field development contracts. The effects are highlighted of bonus/penalty schemes which are generally key elements of the contracts. It is considered that an efficient scheme should produce required incentives without introducing other unwanted incentive effects such as exaggeration of costsavings and understatement of cost over-runs by contractors. The effects of typical schemes on the relative risk: reward positions of contractors and oilfield investors are quantified. The implications for the cost of capital of the respective parties and possible optimal risk bearing within the industry are drawn. 8 refs.