In a very simple nut shell, governments have licensing rounds to allocate exploration licenses. These licenses are normally given to the companies that offer the most attractive package – commitments to exploring the area, money up front to the government, company reliability etc etc. Part of this process will be how much the government is expecting to take from any profit based production (i.e. after the exploration and production costs have been removed). Remember that exploration in deep water could be as much as $180m a well quite a bit really. West of Shetland is definitely deep water, definitely regarded as a hostile drilling environment.
This exploration phase can be lengthy, we have one here that is over 10 years and counting, no well drilled yet! Once a commercial discovery has been made, it will then go into new contract phase, that will last up to 30 years. These always have options for extension. Remember that a production platform is a substantial investment, and not going to be for a years production…
The terms for this may still be the terms negotiated in the exploration phase, but may need to be renegotiated depending on that was found and current market conditions. It is now normally expected that decommissioning costs are part of the factored into the initial process, but it has not always been the case.
Governments take a cut of the barrel price as it comes out of the ground.. And when I say take a cut, its a huge slice of the barrel price. Norway for example is very generous and only take 75% of the profit available. They then take again at the petrol pump, again take another 65 ish % of cost there…