Meta-Modeling Evaluation of the 2017 Petroleum Industry Fiscal Reform Terms on Deep Offshore Assets in Nigeria

Abstract

Abstract Deep offshore hydrocarbon resource development in Nigeria is of great economic interest due to security challenges limiting direct investment flow to onshore petroleum assets. However, Petroleum fiscal systems, which basically describe the relationship between host government and International oil companies (IOCs), are paramount in the deep offshore investment decision process. This paper focuses on assessing the implications on deep offshore asset development economics under the 1993 Production Sharing Contract (PSC) terms in comparison to the fiscal terms in the 2017 petroleum industry fiscal policy reform report. A metamodeling framework is proposed and applied in this paper. The framework adopted involves the development of deterministic cash flow models for both the 1993 PSC and the 2017 proposed fiscal terms. A range of profitability indicators for economic evaluation is generated and Monte Carlo simulation using @Risk software is applied to account for risks and uncertainties. The results reveal that the 2017 fiscal terms appear to be favorable to the contractor based on selected profitability indicators. In addition, there is strong evidence to suggest that the dual tax system proposed in the 2017 fiscal policy is economically attractive to the contractor when compared to the single tax system in the 1993 PSC. Hence, deep offshore E&P development is expected to be more rewarding to contractor under the 2017 draft fiscal policy terms than the 1993 PSC terms, ceteris paribus.