Upstream Petroleum Economic Analysis: Balancing Geologic Prospectivity with Progressive, Stable Fiscal Terms and Instruments

Abstract

Academia - Practical ways to navigate the sea of petroleum fiscal systems worldwide. Fiscal regimes describe all legislative, taxation policy, contractual, and fiscal elements under which petroleum operations are conducted in petroleum provinces or nations. There are far more petroleum fiscal systems worldwide than petroleumproducing provinces. Kaiser and Pulsipher (2006) give some explanations for this phenomenon, including the fact that contracts originating under several different fiscal regimes may be in effect at any given point in time. Other reasons cited include adoption of more than one fiscal arrangement during a licensing round, changes in political and economic conditions as well as in prospectivity assumptions of firms seeking the right to explore and develop petroleum resources, and the host government’s motivation to maximize economic rent collections from its country’s endowed resources. Host Governments vs. Investors Usually, the primary objective of the host government in a petroleumproducing nation is to ensure maximum economic benefits for the country without necessarily seeking total control of all exploration and production (E&P) terms and conditions, investments, and/or production. Other objectives may, however, be pursued, including efficient resource development, access to technology, skilled national manpower, investment funding for local E&P activity, and sustainable economic growth (Iledare, 2008). On the other hand, investors tend to view host countries’ fiscal regimes critically on the basis of their financial objectives.