2. petroleum fiscal system
TRANSCRIPT
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FISCAL SYSTEM
A Joint Venture Must Consider
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ECONOMIC RENT
Difference between the value of production and the cost to extract it
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EXTRACTION COSTS
Includes normal exploration,development and operating costs as well as required rates of return or share of profit for the contractor
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GOVERNMENT POINT OF VIEW
TRADE - OFF
BETWEEN
Risk Aversion
Risk Sharing
Leaning towards bonus bids and royalties
Production or profit sharing through taxation schemes
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PERCENTAGE OF COUNTRIES THAT USESignature Bonuses 40 %
Royalties 75 % 1/3 of them are slidingOf the flat ones, 2/3 are less than 12.5%World Average is 7 %
Government Participation
50 % Average workinginterest participation is 30% for those countries with the participation option
Profit –based Mechanisms Taxes P/O Splits
90%
50%
75% are direct25% are deemed paid or in lieu1/3 have additional taxes
85% of these are sliding
Other 25 % have withholding taxes7 % have DMOs
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DIVISION OF REVENUES
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TAX BASE SPECTRUM
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ROYALTY/TAX SYSTEMSFIRST - ROYALTY
AS % OF GROSS REVENUE
SECOND – DEDUCTIONS
OPERATING COSTS, DD& A AND IDCs
THIRD – TAXATIONS
TAXABLE INCOME (REVENUE LESS ROYALTY AND DEDUCTIONS)SUBJECT TO ONE OR MORE LAYERS OF TAXATION
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CONCESSIONARY SYSTEM FLOW DIAGRAM One Barrel of Oil " Full Cycle " Gross Revenue
Contractor $20 Government Share Royalty Share 12.50% $2.50 $17.50 Net Revenue $5.65 Deductions
Assumed cost Capex and Opex $11.85 Taxable Income
Special Petroleum Tax $2.96 25% $8.89 Income Tax Rate $3.11 $5.78 35% $11.43 Division of Gross Revenues $8.57
$5.78 Division of Cash Flow $8.57 40% TAKE 60%
$5.78/($20-5.65) $8.57/($20-5.65)
87.5% Lifting Entitlement 12.5% $17.50/$20 $2.50/$20
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BASIC EQUATIONS, ROYALTY/TAX SYSTEMSGross Revenues = Total oil and gas revenuesNet Revenues = Gross Revenues
( - ) RoyaltiesNet Revenue ( % ) 100% minus Royalty rate ( % )
Taxable Income = Gross Revenues( - ) Royalties
DEDUCTIONS
( - ) Operating costs( - ) Intangible capital costs (1)( - ) DD&A ( including abandonment costs)( - ) Investment credits ( if allowed)( - ) Interest on Financing ( if allowed)( - ) Tax loss carry forward( - ) Bonuses (2)
Net Cash Flow = Gross Revenues( after tax) ( - ) Royalties
( - ) Tangible capital costs( - ) Intangible capital costs (1)( - ) Operating costs( - ) Bonuses( - ) Taxes
(1)In many systems no distinction is made between operating costs and intangible capital costs, both are expensed.(2) Bonuses are not always deductible for tax calculation purposes.
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CONTRACTUAL SYSTEMSFIRST - ROYALTY
AS % OF GROSS REVENUE
SECOND – COST RECOVERY OPERATING COSTS, DD& A AND IDCs
(SUBJECT TO LIMIT SAY 40% OF GROSS REVENUE)
THIRD – PROFIT OIL OR PROFIT GAS SPLIT(REVENUE LESS ROYALTY AND COST RECOVERY)
( SUBJECT TO SPLIT SAY 40% / 60%)
FOURTH – TAXESCONTRACTOR’S SHARE OF PROFIT IS SUBJECT TO TAX
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