Petroleum Fiscal Regimes Research Articles

Comparative Analysis of Global Petroleum and Gas Fiscal Regimes

Comparative Analysis of Global Petroleum and Gas Fiscal Regimes

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

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.

IMPACT OF PRODUCTION SHARING CONTRACT PRICE SLIDING ROYALTY: THE CASE OF NIGERIA’S DEEPWATER OPERATION

Petroleum fiscal regime has been a controversial issue in Nigerian economy. The basic issue is which regime will lead to the greatest benefit to the government without negatively affecting the performance of the international oil companies. Nigeria has in the past used different regime and had adopted the current price sliding royalty regime in 1996. The aim of this study is to examine how the new price sliding royalty affects the stake of government and contractors. This study adopts ex-post research design approach using data from various sources between 1980 and 2019. The autoregressive distributed lag (ARDL) regression approach was adopted for the data analysis. The unit root results reveal that the time series data consists of a mix of I(1) and I(0) variables. The ARDL bound cointegration test shows that all the variables specified in the models have long run relationship. Estimates from the models indicate that the royalty regime in the Deep Offshore and Inland Basin Production Sharing Contract has positive and significant impact on the stake of government in the long and short runs, but negative impact on the stake of contractors. Furthermore, the royalty regime has negative impact on contractors’ performance in the long run. However, the impact on the three fiscal indicators (oil revenue, government expenditure, and deficit-GDP ratio) is positive. The study therefore recommends the repeal of the Nigerian petroleum fiscal policy with the new price sliding royalty to encourage investment and development of the petroleum sector.

Indonesia’s New Petroleum Fiscal Regime: Fiscal Changes, Impacts and Future Trends

Indonesia has its special influence on the world petroleum industry not only due to its relatively abundant resources but also to its historical influence on world petroleum fiscal regimes. The newly enacted EMER regulation on Gross Split PSC in 2017 was the biggest structural change of Indonesia’s petroleum fiscal regime in a decade and will have profound influence on Indonesia’s Petroleum Industry. This research compares the detailed fiscal terms between Indonesia’s standard PSC and Gross Split PSC and further analyse the possible negative impacts based on model economic evaluation analysis as well as qualitative analysis. In conclusion, the Gross split PSC has negative impacts on contractor economics and may deter new investments in oil and gas exploration and development. Although the gross split PSC brings the simpler administration and better structure of fiscal progressivity. The change to Gross Split PSC reflects Indonesia’s long fiscal policy trend of increasing government take and strengthening government control. However, Indonesia’s government will also bring more incentives to offset the negative impacts of fiscal regime change and thrive to balance between improving government benefits and attracting foreign investments to revitalize oil and gas exploration and development.

Open Uruguay Round: strategy to overcome the challenges of frontier exploration

Abstract Uruguayan geological basins imply a high exploratory risk and therefore present a frontier status. However, Latin America and West Africa are the regions in which exploratory activity has seen a remarkable increment, with major discoveries and significant investment in the last decade, and plenty of E&P opportunities nowadays. Within this context, The Uruguayan Government has recently approved a new bidding system for onshore and offshore areas, Open Uruguay Round, including very competitive features and contractual terms, after evaluating other countries’ petroleum fiscal regimes.

MODELING THE INFLUENCE OF ATTRACTIVE PETROLEUM FISCAL REGIME DIMENSIONS ON MARGINAL FIELDS’ INVESTMENT CLIMATE IN MALAYSIA

Attractiveness of a country petroleum fiscal system plays significant role in investment location decisions. This study modeled the influence of attractive petroleum fiscal regime dimensions on marginal oil fields' (MOFs) investment climate in Malaysia. The dimensions examined in this study are fiscal administration/economy, fiscal certainty, fiscal efficiency, and fiscal equity/neutrality. Data was collected through survey of accounting, business and taxation experts' within Malaysian MOFs subsector. It was analyzed using Partial Lease Square (PLS) – Structural Equation Modeling (SEM) version 3 and Special Package for Social Science (SPSS) version 19. The results showed that fiscal certainty, fiscal efficiency and fiscal equity/neutrality were found to have significant positive influence on marginal oil fields' investment climate, adversely insignificant influence of fiscal administration/economy on marginal oil fields investment climate was reported. The result has established weaker link between petroleum fiscal regime administration and MOFs' investment climate in Malaysia, thus highlighting the scope for improvement on this dimension. Therefore, it is recommended that concerned authorities should consider strengthening of the administrative framework of MOFs' fiscal regime, thereby enhancing its investment climate. To the best of our knowledge this is the first study that employed the use of experts' perception in modeling the influence of attractive fiscal regime dimensions on oil and gas fields' investment climate, and eventually investment location decisions.Keywords: attractive petroleum fiscal regime, investment climate, investment location decisionJEL Classifications: M4, M48, Q4, Q48DOI: https://doi.org/10.32479/ijeep.7721

Assessment of Upstream Petroleum Fiscal Regimes in Myanmar

This study aims to assess Myanmar’s upstream petroleum fiscal regimes by applying comprehensive indicators to rank the level of attractiveness of Myanmar. The indicators include government take (GT), front loading index (FLI), and composite score (CS). The decision maker’s attitude for GT and FLI were considered in CS linear weighting method in ranking the fiscal terms attractiveness. The results showed that Myanmar’s upstream petroleum fiscal regime has low attraction compared to its competing countries from the investor’s point of view, both in terms of the risk to the investor in the earlier part of the project and in terms of evaluation with or without the time value of money. Also, royalty and cost recovery were identified to have an impact on the attractiveness rank of petroleum fiscal regime in Myanmar. Therefore, Myanmar should consider improving its fiscal regimes that are not neutral—particularly, royalty, tax, profit split, and cost recovery—for a favorable investment climate.

Review of Australia's Petroleum Resource Rent Tax: Implications from a Case Study of the Gorgon Gas Project

Australia has welcomed new business investment of $200 billion for integrated gas projects. However lower than expected tax receipts have tempered the early optimism of project benefits. In particular, petroleum resource rent tax (PRRT) revenues since the 2002–03 financial year have fallen. These reduced revenues have raised concerns about the effectiveness of petroleum taxation in Australia and pressured the Australian Government to call for a review of the PRRT in late 2016. Examined are the modifications necessary to the petroleum fiscal regime to address one of the PRRT Review's aims of providing an equitable return to the Australian community. Findings from a case study of an operational gas project include the need for PRRT modifications, and the addition of royalties for particular integrated natural gas projects in Commonwealth waters. The article is significant for its unique overview of Australia's petroleum taxation since the fall in oil prices from mid-2014 and the rise of gas export projects. This interdisciplinary and empirical research forms an important contribution to the current Commonwealth PRRT Review through its recommendations for change to the Petroleum Resource Rent Tax Assessment Act 1987 (Cth). It calls for more uniform federal legislation for the taxation of petroleum resource projects.

Towards establishing a scale for assessing the attractiveness of petroleum fiscal regimes – Evidence from Malaysia

This paper identifies a gap in the current literature relating to the attractiveness of petroleum fiscal regimes and suggests that establishing a measurement scale based on relevant factors drawn from the extant literature and on the perceptions of experts would complement the economic models currently in use and could become an industry standard. It will undoubtedly influence the petroleum fiscal policies and practices of petroleum producing countries. The methodology used involved a review of literature to identify factors that enhance the attractiveness of petroleum fiscal regimes; deploying experts to validate the appropriateness of the identified factors; conducting exploratory factor analysis and evaluating the internal consistency reliability of the construct's dimensions; performing confirmatory analysis for convergence and discriminant validity of the dimensions; and computing model fit indices to evaluate the goodness of fit of the four-factor correlated attractiveness petroleum fiscal regime scale. The results obtained suggest that a credible and manageable scale for assessing the attractiveness of petroleum fiscal regimes can be readily constructed. This research has taken the first important pioneering step in the construction of a globally applicable scale, the mechanics of which will require extension of our research, and consequently makes a significant contribution to policymaking and literature.

A Comparative Analysis of Production Sharing Contracts of Selected Developing Countries: Nigeria, Indonesia, Malaysia and Equatorial Guinea

Maximization of returns and benefits are the major determinants state considers for adopting particular petroleum fiscal regime in the course of exploiting its petroleum resources. Two major fiscal regimes are adopted for exploiting petroleum resources: Joint venture agreement (JVA) and production sharing contract (PSC). However, considering the inherent difficulties associated with Joint venture agreements, developing countries gave emphasis to production sharing contract. This study aims to compare expected returns from exploiting petroleum resources of selected countries (Nigeria, Indonesia, Malaysia and Equatorial Guinea) that have adopted the Production Sharing Contracts. A literature based methodology was adopted, and indeed, data were gathered from the PSC treaties and related documents. The findings suggest that Nigerian PSC provides less return compared to its contemporaries. Indeed, the results showed that Malaysia received the highest returns, followed by Indonesia and Equatorial Guinea. On the other hand, the findings justified the underlying hypothesis of socio-economic factors help shape the terms and conditions of oil and gas contracts in developing countries particularly production sharing contract.

Investigating the effectiveness of different forms of mineral resources governance in meeting the objectives of the UK petroleum fiscal regime

After 40 years of oil investments, the UK is now a mature oil province. During these 40 years or so, the UK Government has changed the type of governance it uses to manage its petroleum resources. This paper introduces the theoretical background to two models of mineral resource governance: proprietorial and non-proprietorial regimes. It investigates how adoption any of these two models by the UK Government has historically affected the achievement of the objectives of the UK petroleum fiscal regime. The analysis tracks the changes in the governance of the UK petroleum resources using changes in the average petroleum tax rate, and how this last influenced the achievement of the objectives of the UK petroleum Regime. The findings remain significant for their policy implications. The study concludes that the UK Government adopted a proprietorial type of mineral governance during the period 1975–1982, before changing to a non-proprietorial regime in the period 1983–2000. Since 2000 it has begun to move back towards a proprietorial style of governance. The excessive use of one type of these modes of governance leads to the objectives of the UK petroleum fiscal regime being not met.

The taxation of UK oil and gas production: Why the windfalls got away

Starting with evidence that United Kingdom Continental Shelf oil and gas companies have benefitted very disproportionately from the recent period of extraordinarily high oil prices, this paper traces the history of this weakness in the UK’s petroleum fiscal regime. Evidence is provided that the progressive relaxations in the UK’s petroleum fiscal regime in 1983, 1987–1988 and 1993 were: largely unnecessary to stimulate the development of new, smaller, ‘marginal’ fields; misguided in their assumption that such fields were more costly to develop than earlier counterparts or larger contemporary fields; and impotent compared with the effects of oil price movements. The paper concludes with a conceptualisation which illuminates why these failures of policy were not just random: they emerged from the UK’s ‘non-proprietorial’ stance with respect to the country’s oil and gas resources, a stance which assumes responsibility for oil company profitability and vainly tries to counter market forces at the expense of government revenues.

Pitfalls of percentage take metric for assessment of petroleum fiscal regimes

With today's volatile oil prices, contractors and host governments seek ways to maximise wealth and minimise risk in developing oil fields. Fiscal regimes are used by governments and contractors to maximise wealth and minimise risk. Both contractors and host governments use economic metrics to evaluate the economic viability of a fiscal regime. Some of these economic metrics are net present value, internal rate of return and percentage take. The objective of this paper is to show the pitfalls associated with the percentage take metric. A production sharing contract for an oil field with a reserve of 100 million barrels equipped with risk analysis is used to illustrate the pitfalls and to quantify their impact. The main conclusion is that the government and the contractor percentage take do not capture the impact of changing oil prices and the size of the cash flow. Furthermore, the government percentage take misleads contractor investment decisions by causing them not to invest in severe fiscal regimes with higher oil prices, even though the financial rewards would be the same as those achieved with a lenient fiscal regime under lower oil prices.

Global petroleum fiscal regimes

Global petroleum fiscal regimes

Comparing petroleum fiscal regimes under oil price uncertainty

This study investigates and compares five upstream petroleum fiscal systems under crude oil price uncertainty. The fiscal systems analyzed are: the Alberta Canada tax and royalty system, the Papua New Guinea (PNG) (pre-2003) traditional Rate of Return (ROR) system, the Sao Tome and Principe/Nigerian Joint Development Zone (SNJDZ) Production Sharing Contract (PSC), the Tanzanian PSC/ROR hybrid system and the Trinidad and Tobago PSC. Contingent claims analysis is used to value the governments’ tax claims under uncertainty using a numerical approach, viz., Monte Carlo simulation. Each system is tested to obtain the after-tax value accruing to firms as well as the distortionary effects introduced by the fiscal systems. The results are then ranked. The Alberta Canada and PNG fiscal systems provide companies with the highest after-tax values while also being the least distortionary. The Tanzanian system is the lowest in both rankings, providing relatively low after-tax values and introducing strong distortionary effects. The SNJDZ PSC imposed a relatively high tax burden on companies with median distortionary effects. The Trinidadian PSC generated a median tax burden on companies but has strong distortionary effects.

Resource Rent Taxation as a Basis for Petroleum Tax Policy by Foreign Governments and its Relationship to US Foreign Tax Credit Policy and Tax Law

This article explains the concepts of economic and resource rent in the area of natural resources as a basis for fiscal and tax policies by governments, and the relationship to US foreign tax credit policy and tax law. The article examines how the concepts of economic and resource rent are applied to tax the development of petroleum resources under several petroleum fiscal regimes. The changing parameters of a US creditable tax are discussed. The effect of selected income tax treaties on the creditability of foreign petroleum taxes is examined. Finally, conclusions are made concerning the creditability of resource rent taxes, following significant interpretations of the US regulations by court decisions in the Phillips, Texasgulf and Exxon cases.

Unlocking Manitoba's Oil And Gas Potential

Abstract In the early 1990s oil and gas exploration and development in Manitoba decreased dramatically. Between 1989 - 1991, only six geophysical programs were run. By the end of 1991 the amount of Crown land under disposition had dropped to 25,800 ha, a 12 year low. In 1992, only 28 wells were drilled in the province. In 1993 Manitoba Energy and Mines recognized that simply providing a stable and competitive fiscal regime was not enough to attract new companies and new investment to Manitoba. A more aggressive approach was need to encourageExploration activity, in particular targeting under-explored pre-Mississippian formationsThe application of new technologies, i.e., horizontal drilling and 3D seismicRecompletions and workovers of existing wells and optimization of existing waterflood projects The culmination of our efforts was the introduction of the Petroleum Exploration Assistance Program (PEAP) in November 1995. PEAP provides assistance to companies exploring for oil and gas in Manitoba. The program provides funding of up to 20% of eligible expenditures to a maximum of $200,000 per company in any fiscal year. PEAP funding has been approved at $1 million a year for three years. PEAP in combination with Manitoba's Drilling Incentive Program (MDIP) and other competitive advantages has resulted in a tremendous increase in oil and gas activity in the province. Crown land under disposition has more than quadrupled to 113,566 ha. Over 1,900 km of seismic was run in 1996, more than in the previous seven years combined. A total of 57 wells were drilled last year of which 28 or 49% were exploratory including 15 pre-Mississippian tests. This paper outlines the initiatives of Manitoba Energy and Mines to attract oil and gas investment to Manitoba and the competitive advantages enjoyed by operators in the province. A brief overview of Manitoba's geology provides a framework for a summary of oil and gas activity in the province. Included is a description of PEAP and MDIP. A comparison of Crown royalty, production tax and petroleum incentives between Manitoba and Saskatchewan is provided to illustrate the attractiveness of investment in Manitoba. Introduction The mission of Manitoba Energy and Mines, Petroleum and Energy Branch is to foster investment in the sustainable development of Manitoba's petroleum resources. The Branch believes there is the potential for substantial ongoing exploration in Manitoba. The Branch also recognizes that there is tremendous competition for capital investment and, to quote David Tuer, President and CEO of PanCanadian Petroleum, "capital knows no borders"(1). The Branch has a four-prong strategy to provide the best business climate in Canada for oil and gas investment:Develop easy to understand workable regulations, policies and proceduresDevelop and disseminate resource informationEnsure Manitoba's petroleum fiscal regime is effective and CompetitiveWork to achieve a high level of awareness of our competitive Advantages The first step in development of workable regulations was completed in 1994 when Manitoba's new Oil and Gas Act was proclaimed.

The Petroleum Fiscal Regime and Oil Company Status

In the foreseeable future the Republic of Croatia will be included in lhe market economy as a consequence of recent widespread social changes. The oil industry will also be affected by these changes, inevitably becoming a part of the wider markel, and it will have to adjust its business practice accordingly. To facilitate the inevitable transition of INA into a modern and profitable company, capable of survival in the market, it is necessary to create favourable business environments for possible economic growth and development. As a first step towards this goal it is necessary for the state of Croatia to adjust its legal system to be compatible with those prevailing in the market economy. There are several different legal approaches in world practice specific for a particular country, and one has to take them into consideration while creating legal relations in the oil industry in Croatia. Here it comparison is made between the present legal status in Croatia and some of the others abroad. An optimal solution is proposed from the viewpoi nt of the company dealing with the oil industry.

The Economics of Exhaustible Resources

The discussion is confined in scope to absolutely irreplaceable assets. Topics include peculiar problems of mineral wealth, free competition, maximum social value and state regulation, monopoly, value of a mine monopoly, retardation of production under monopoly, price effects from cumulated production, and the author's mathematically derived optimum solutions. (PCS)