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Analyzing Competitiveness Fiscal Regimes

Analyzing Competitiveness Fiscal Regimes. Consultant’s Perspective. Irena Agalliu, Managing Director July 30, 2013 USAEE Conference, Anchorage. Race to the ‘top” or race to the ‘bottom”?. Why Competitiveness Review?. Frence Australia New Zealand Senegal Guatemela Nigeria Algeria

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Analyzing Competitiveness Fiscal Regimes

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  1. Analyzing Competitiveness Fiscal Regimes Consultant’s Perspective Irena Agalliu, Managing Director July 30, 2013USAEE Conference, Anchorage

  2. Race to the ‘top” or race to the ‘bottom”?

  3. Why Competitiveness Review? Frence Australia New Zealand Senegal Guatemela Nigeria Algeria Libya Russia East Timor Romania Russia UK Mingolia Falkland Islands Denmark PNG Greece Cambodia 2005 2003 2004 2006 2013 2011 2010 2009 2008 2007 2012 Colombia Turkey Pakistan Kazakhstan Belize Vietnam Portugal Spain Ukraine India PNG Oman Norway Poland Tanzania

  4. Objective of Review • Most common objective • “Fair share” or “Fair return” • There is universal consensus that the government and the public should receive a fair share of the revenue from the oil and gas resources. • There is no standard or benchmark as to what that means • Wade Locke – “fair share is a judgment or opinion that can neither be refuted nor proven” • Alberta Royalty Review 2007 – recognized the inherently subjective nature of the fair share concept. • Yet - concluded that Alberta was not receiving its fair share - without properly defining the benchmark or justifying the reasoning for such a conclusion.

  5. Effective Competitiveness Review The review is accompanied with market analysis The peer group is properly identified Actual finding and development costs are being used There is a realistic perception of the resource potential

  6. Market – The Best Indicator Interior Revenue from OCS ACES Introduced

  7. Peer Group Selection • Similar government objectives • Whether the jurisdiction competes for investment in the global or regional market • Type of resources • Success of the particular jurisdiction in attracting investment • Types of investors: global versus small regional investors • Common characteristics with respect to • market challenges • cost of development

  8. Reserves and Price and Cost Assumptions • Size and availability of remaining recoverable reserves • Looking at actual fields in each jurisdiction versus hypothetical oil and gas fields • Reliance on hypothetical models • Limited applicability – mainly theoretical • Finding and development costs – mirror each investment environment • Actual costs • Technological challenges associated with each resource type • Well productivity • Water depth • Distance from market, etc. • Varying Commodity Prices • Different market prices for gas • Price differentials to account for quality of crude • Netback pricing to for cost of transportation

  9. Selecting the Peer Group – E&P Activity Scorecard E&P Activity Scorecard Field Sizes per New-field Wildcats

  10. What should be the basis for comparison? GOVERNMENT TAKE Finding Common Ground GOVERNMENTS EMV NPV IRR PI COMPANIES

  11. Why not rely on Government Take alone?

  12. Composite Index

  13. Fiscal Terms Index Score 0 Score 5 • Low Government Take • High IRR • High PI • Neutral Fiscal System • High Government Take • Low IRR • Low PI • Regressive/Progressive • Fiscal System • Combines government take with measures of profitability • Examines the relationship between project profitability and government take • Regressive fiscal systems • relationship is inverse – government take declines as profitability increases and vice versa • Progressive fiscal systems • direct relationship - government take increases as profitability goes up

  14. Ranking of Fiscal Systems

  15. Is Ranking Sufficient? • Ranking eliminates fields with zero IRR • Perhaps such resources will not be developed • In-depth analysis needs to consider under what terms such fields may become profitable – if at all • Ranking assumes there will be a market for the stranded gas • Is being in the middle of the pack incentive enough to develop the needed infrastructure? • Should the same terms apply to oil and gas? • While ranking provides a measure for comparison, it does not necessarily offer confidence that the system is perceived to be fair by the market forces • . The market test is often the best test for the fairness of a fiscal system – such test is not without risk.

  16. Questions? IHS Offerings • Specialized Information Databases • Software Information Systems and Intelligence Networks • Publications and Reports • Summits and Conferences • Advisory Services and Research • Consulting Strategic Planning Exploration and Production Engineering and Construction Midstream and Downstream EHS and Sustainability Advancing Decision Across the Oil and Gas Value Chain

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