Impact of Production-Sharing Terms on Investment-Community Performance Statistics

Abstract

This paper (SPE 52017) was revised for publication from paper SPE 49178, prepared for the 1998 SPE Annual Technical Conference and Exhibition, New Orleans, 27 30 September. Original manuscript received 17 June 1998. This paper has not been peer reviewed. Summary Hydrocarbon reserves and the ability to produce them profitably are the lifeblood of the upstream petroleum industry. Aggressive competition, ever-sharpening scrutiny by the investment community, and volatile product prices drive companies to search for attractive new E&P venture opportunities that will add the greatest value for a given investment. Production-sharing and other related nontraditional agreement types have become popular because they provide host countries with the flexibility to tailor fiscal terms to fit their sovereign needs. However, actual agreement terms, including those that relate to royalty payments, cost recovery, profit sharing, and taxes, can have a significant impact on the statistics that the investment community uses to access and rank the performance of a petroleum company. This paper examines the impact of these terms and of product-price volatility on investment-community performance statistics, such as reserves replacement; unit exploration, development, and operating costs; and earnings. Representative examples demonstrate the variation in these performance statistics with variations in product price. Limitations in the various indicators are highlighted. P. 50