Impact of the New Brazilian Fiscal System on Development of Oil Production Strategy

Abstract

AbstractProduction strategy is an important component of the oil reservoir development phase. Among, the main parameters are the geometry, number and position of wells and platform liquid capacity, influencing the level of the project investment required, which all depend on geological characteristics, economic scenarios and fiscal regimes. In the oil industry, companies produce under a fiscal system imposed by the government, which has a strong impact on economic and operational indicators, influencing production strategy.Recently, the Brazilian government established a law changing its fiscal terms on pre-salt areas from Royalty and Tax (R&T) to Production Sharing Contract (PSC) to increase the government take. Previous works have shown that, in optimistic scenarios, an optimal recovery strategy presents low discrepancy in the production strategy configuration across both fiscal regimes. This study considers four economic scenarios for further evaluation. For this purpose, a simulation model was submitted to the production strategy selection process for both fiscal systems.In more pessimistic economic scenarios, the results indicate that the number of wells and the level of investment tend to be lower under PSC than under R&T system. Thus, the new system could lead to fewer industrial investments, which would reduce the government return compared to the former tax system. In the most pessimistic scenario considered, profitable production could be expected under R&T, while under PSC it would be unprofitable, generating lower revenues.It is still not clear whether a company, under PSC, will also be able to develop its strategy plan based on NPV or whether negotiation with the government regarding a minimum oil recovery factor will take place. Regardless, this study identifies the impact on production strategy selection for the new Brazilian PSC system compared to optimized strategy for R&T, and in both cases the objective-function is the company's NPV. From the company's point of view, depending on the economic scenario, the prevailing fiscal system will influence decisions at the level of the investment to be made. The results show the importance of considering the impact of the new fiscal system when selecting production strategies.