analyzing competitiveness fiscal regimes
DESCRIPTION
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 - PowerPoint PPT PresentationTRANSCRIPT
Analyzing Competitiveness Fiscal RegimesConsultant’s Perspective
Irena Agalliu, Managing DirectorJuly 30, 2013USAEE Conference, Anchorage
© 2013 IHS
Race to the ‘top” or race to the ‘bottom”?
© 2013 IHS
Why Competitiveness Review?
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2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
ColombiaTurkeyPakistanKazakhstanBelizeVietnamPortugalSpainUkraineIndiaPNGOmanNorwayPolandTanzania
RussiaUKMingoliaFalkland IslandsDenmarkPNGGreeceCambodia
FrenceAustraliaNew ZealandSenegalGuatemelaNigeriaAlgeriaLibyaRussiaEast TimorRomania
AlgeriaBeninPolandVenezuelaChinaArgentinaJordan Equatorial GuineaAlaskaBoliviaAlbertaEcuadorTurkey
BulgariaHungaryRomaniaUzbekistanAzerbaijanNetherlandsRussiaEast TimorCameroonT&TUKSouth AfricaOman
MexicoKyrgystanGermanyIrelandChinaArgentinaBelizeEcuadorAlaskaUkraineUS-GOMChadPolandVietnamThailandBoliviaGuinea Bissau
IndonesiaAngolaNigeriaPakistanLibyaIndiaAlbertaNewfoundlandGuinea BissauYemenCyprusDRCIcelandVenezuelaSri LankaNova ScotiaNiger
VenezuelaColombiaKazakhstanEgyptUS-GOMAngolaRussiaIndiaIndonesiaHungaryNew ZealandHungaryYemen
VietnamAlbaniaKyrgystanBangladeshBritish ColumbiaArgentinaFalkland IslandsTanzaniaSurinamePNGTurkmenistanSpainMozambique
UKIndiaAlbertaBruneiKazakhstanGermanyCzech RepublicQatarPakistanVietnam
AlbertaKazakhstanIndonesiaNetherlandsRussiaBrazilAlaskaUzbekistanHungaryPortugalUKVietnamEcuadorT&TIsraelYemen
RussiaAustraliaKazakhstanUKAlbertaColombiaUkraineAlaskaMalaysiaPakistanIsraelEgypt
ColombiaUKAustraliaBangladeshIndiaUkraineIndonesiaMyanmarPeruT&TIraq
UKArgentinaBrazilRussiaNorwayAlaskaItalyPolandSri LankaAlgeria
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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.
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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
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Market – The Best Indicator
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$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
$20,000
2005 2006 2007 2008 2009 2010
Mill
ion
Dolla
rs
Fiscal Year
Bonus
Rents
Royalty
Source: IHS CERA, data from ONRR
2006 2007 2008 2009 2010Louisiana $377.33 $527.94 $2,321.65 $1,107.16 $1,239.17 British Columbia $358.54 $691.33 $1,383.37 $902.27 $871.16 Texas $413.74 $267.66 $366.16 $277.97 $869.21 Alberta $214.91 $149.28 $182.28 $165.31 $243.66 Wyoming $46.67 $62.06 $77.44 $24.64 $167.85 Alaska $22.86 $15.72 $25.00 $25.89 $14.78
$0
$500
$1,000
$1,500
$2,000
$2,500
Bonu
s Bid
per
Acr
e (U
S$)
Source: IHS CERA
Interior Revenue from OCS
ACES Introduced
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
2005 2006 2007 2008 2009 2010 2011 2012
Mill
ion
Cana
dian
Dol
lars
Year
Bonus Payments
Source: Alberta DOE and IHS CERA.
Alberta Royalty Review (2007)
RoyaltyInventives
Gas Price Drops to$2.26/MMBtu
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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 7
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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
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Selecting the Peer Group – E&P Activity Scorecard
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0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50
Germany
Poland
U.S. Wyoming
U.S. Alaska
U.S. Louisiana
U.S. GOM shelf
Colombia
Malaysia
Indonesia
Canada (British Columbia)
Kazakhstan
India
Australia (Queensland)
Canada (Alberta)
Libya
United Kingdom
Algeria
Australia offshore
U.S. GOM deepwater
Norway
U.S. Texas
Angola
China
Venezuela conventional oil and gas
Russia
Brazil
E&P Activity Score
Oil Production
Gas Production
No. of New-field Wildcats
Acreage Leased
No. of Operators
Oil Reserves Added
Gas Reserves Added
Reserves per NFW
Success Rate
High Production LevelsHigh E&P Activity
High Exploration Success
Source: IHS CERA
0.00 20.00 40.00 60.00 80.00 100.00 120.00 140.00
U.S. TexasU.S. Louisiana
U.S. GOM ShelfU.S. Wyoming
Canada (Alberta)U.S. Alaska
Poland conventional oil and gasAustralia (Queensland)
ColombiaIndonesia conventional gas
Venezuela heavy oilRussia
IndiaUnited Kingdom
AlgeriaKazakhstan
ChinaLibya
MalaysiaU.S. GOM deepwater
NorwayAustralia offshore
AngolaBrazil
Venezuela gas
Field Size per New Field Wildcat (MMboe)
Source: IHS CERA
Field Sizes per New-field WildcatsE&P Activity Scorecard
© 2013 IHS COMPANIES
Finding Common Ground
NPVIRR PI
EMV
GOVERNMENT TAKE
GOVERNMENTS
What should be the basis for comparison?
© 2013 IHS 11
Why not rely on Government Take alone?
Pretax Cashflow
Government Take
Bonus
Royalty
Income Tax
Investor Net Income
Capital Expenditure
Operating Expenses
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
Project Cash Flow Government & Investor Split of Pretax Cashflow
Components of Government Take
Mill
ion
$
57%
Source: IHS CERA
Pretax Cashflow Government Take
Bonus
Royalty
Income TaxInvestor Income
Capital Expenditure
Operating Expenses
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
Project Cash Flow Government & Investor Split of Pretax Cashflow
Components of Government Take
Mill
ion
$
78%
Source: IHS CERA
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Composite Index
Index VariablesIndex CategoriesTotal Jurisdiction Score
Jurisdiction Score
Fiscal Terms
Government Take
P/I
IRR
Progressivity/Regressivity
Revenue Risk Timing of Revenue
Fiscal Stability
Type of Change
Nature of Change
Degree of Change
Frequency of Change
Weighted Score40 % weight
30 % weight
30 % weight
25%
25%
25%
25%
100%
20%
30%
40%
10%
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Fiscal Terms Index
•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
Score 5Score 0
• Low Government Take• High IRR• High PI• Neutral Fiscal System
• High Government Take• Low IRR• Low PI• Regressive/Progressive
Fiscal System
© 2013 IHS
Ranking of Fiscal Systems
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- 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50
Canada (British Columbia)Poland onshore
Norway offshoreIndonesia coalbed gas
Indonesia conventional gas offshoreAustralia offshore
United Kingdom offshoreAlgeria onshore
India offshoreMalaysia offshoreColombia onshoreGermany onshore
Australia (Queensland) coalbed gasU.S. Louisiana onshore gas
U.S. Wyoming gasChina offshore
U.S. Alaska New TermsCanada (Alberta) conventional oil
U.S. GOM deepwaterBrazil offshore
U.S. GOM shelfLibya onshore
Angola offshoreU.S. Texas onshore
Kazakhstan offshoreVenezuela conventional gas
Canada (Alberta) oil sandsRussia onshore
U.S. Alaska onshoreVenezuela heavy oil
Index Score
Gov Take
PI
IRR
Progressivity/Regresivity
Revenue Risk
Type of Change
Applicability of Change
Degree of Change
Frequency of Change
Government Perspective
Investor Perspective
Source: IHS CERA.
Government Perspective
Investor Perspective
Source: IHS CERA.
© 2013 IHS
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.
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