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An energy derivative is a derivative contract based on (derived from) an underlying energy asset, such as natural gas, crude oil, or electricity. [1] Energy derivatives are exotic derivatives and include exchange-traded contracts such as futures and options, and over-the-counter (i.e., privately negotiated) derivatives such as forwards, swaps and options.
The term "resource rent" expresses the difference between the values of hydrocarbons extracted from a deposit and the total costs of exploring and producing the hydrocarbons, synonymous with excess profit. Resource rents will be distributed among the state and the oil companies engaged in extracting hydrocarbons in a license.
A derivative is a financial contract or instrument that "derives" its value from the price or other characteristic of an underlying "thing" (or "commodity"). A farmer might enter into a "derivative contract" under which the farmer would sell from next summer's harvest a specified number of bushels of wheat at a specified price per bushel.
The oil and gas industry operates in countries throughout the world in accordance with a number of different types of agreements. These agreements generally fall into one of four categories (or a combination of the categories): risk agreements, concessions, production sharing agreements (PSAs, also known as production sharing contracts, PSCs) and service contracts.
[citation needed] A fuel hedge contract is a futures contract that allows a fuel-consuming company to establish a fixed or capped cost, via a commodity swap or option. The companies enter into hedging contracts to mitigate their exposure to future fuel prices that may be higher than current prices and/or to establish a known fuel cost for ...
Because it derives its value from the value of the underlying asset, a futures contract is a derivative. Contracts are traded at futures exchanges, which act as a marketplace between buyers and sellers. The buyer of a contract is said to be the long position holder and the selling party is said to be the short position holder. [1]
Exchange-traded derivative contracts [1] are standardized derivative contracts such as futures and options contracts that are transacted on an organized futures exchange. They are standardized and require payment of an initial deposit or margin settled through a clearing house . [ 2 ]
An exotic derivative, in finance, is a derivative which is more complex than commonly traded "vanilla" products. This complexity usually relates to determination of payoff; [ 1 ] see option style . The category may also include derivatives with a non-standard subject matter - i.e., underlying - developed for a particular client or a particular ...