International Comparison of Nigerian Petroleum Fiscal Regime with the US, UK and Norway: A Real Option Analysis on Deepwater Projects Investment

Abstract

Given the mission of the international oil companies which is to find, develop, refine and market hydrocarbon resource in a fashion that achieves the highest economic returns to the owners coupled with the competitiveness of attracting international investment capital, it follows then that oil producers would give priority to oil provinces or regions with economically attractive petroleum fiscal regime that could aid their mission. The relationship between taxation of mineral resources and investment attraction for efficient recovery of hydrocarbon resource has been established by compelling theories. However, the fact that the behavior and effect of fiscal regime on investment decision are not apparent without detailed economic analysis makes empirical analysis imperative. Thus, this study investigated the economic efficiency and competitiveness of international petroleum fiscal regime using real option analysis in Gulf of Guinea, Gulf of Mexico, and the North Sea with sampled Petroleum Fiscal System in Nigeria, The United States, The United Kingdom and Norway. The economic impacts of the fiscal regimes were estimated by real option analysis methodologies for Large and small new oil fields development. Three future oil prices of $30, $45 and $60 per barrel were considered for the economic analysis. For large oil fields, under the worst case oil price of $30 per barrel, the post-tax option values per dollar investment were $0.67, $0.95, $0.54 and $0.60 respectively for Nigeria, The United States, The United Kingdom and Norway showing the United States as preferred investment destination for international investors. However, for a small oil field, Norwegian fiscal system promises better returns than any of the other oil provinces particular during adverse operating conditions.