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How governments tax petroleum-- Will it change?. Pedro van Meurs Thursday, March 15, 2007 BEAR STEARNS Van Meurs Corporation Nassau, Bahamas Tel: (242) 324-4438 e-mail: info@vanmeurs.org. How governments tax petroleum-- Will it change?. YES. Government Take Trends.

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how governments tax petroleum will it change

How governments tax petroleum-- Will it change?

Pedro van Meurs

Thursday, March 15, 2007

BEAR STEARNS

Van Meurs Corporation

Nassau, Bahamas

Tel: (242) 324-4438

e-mail: info@vanmeurs.org

government take trends
Government Take Trends

The “government take” on oil and gas consists of many components:

  • bonuses
  • royalties
  • corporate income tax
  • production sharing
  • equity participation by governments
  • special taxes and profit shares, and
  • import duties, property taxes, etc.

The “government take” is the total of all these payments as a share of the profit (before government take).

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government take trends1
Government Take Trends

Three phases since 1974:

1974 – 1984: strong increases in government take:

-- Increase in oil prices

-- Reduction in acreage through nationalizations

1984 – 2003: decreases in government take:

-- Decrease in oil prices

-- Expansion of acreage (political, privatizations, technology)

2003 – 2007: increases in government take:

-- Increase in oil prices

-- Reduction of acreage (partial re-nationalizations, political restrictions)

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government take decline 1984 2003 increase in political acreage availability
Government Take Decline 1984 - 2003Increase in political acreage availability

** Eastern Europe

** Former Soviet Union: Russia, Kazakhstan, Turkmenistan, Azerbaijan

** Venezuela, Peru, Brazil, Argentina, Bolivia, Cuba, Mexico

** China, Mongolia, Myanmar, Cambodia, Vietnam, India

** Saudi Arabia, Iran, Qatar

Remaining: Kuwait ?, Iraq ?

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government take decline 1984 2003 increase in technical acreage availability
Government Take decline: 1984-2003 Increase in technical acreage availability

** Rapid development of deep water technology

** New and improved pipelines opened inland basins: Bolivia, Siberia, Chad and Sudan

** Improved LNG technology makes gas now a world wide commodity

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government take decline 1984 2003
Government Take decline: 1984 – 2003:

Many nations lowered their government take:

** North Sea: UK, Norway, the Netherlands, Denmark

** North America: Canada, USA,

** Latin America: Peru, Bolivia, Argentina

** Asia: Pakistan, Thailand, Malaysia.

** North Africa: Algeria, Egypt

** Africa: Nigeria, Congo, Gabon, Angola

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government take increase 2003 2007 oil
Government Take Increase: 2003 – 2007Oil

Since 2003 oil and gas prices are increasing

Acreage expansion has now reached a saturation point - Most petroleum basins are now accessible. No more new previously unexplored or unavailable acreage is coming on the market.

In fact, political developments are now reducing acreage availability or making acreage less attractive: Russia, Iraq, Iran, Venezuela, Bolivia

Result: Government take on oil is increasing again

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government take increase 2003 2007 oil1
Government Take Increase: 2003 – 2007Oil

Increase in government take on oil is taking place along four different paths:

** Fiscal systems are adjusting automatically upward because of the progressive structure of some systems: Angola, Malaysia, Trinidad and Tobago, Russia and India

** Governments are changing fiscal terms: UK, Alaska, Algeria and Kazakhstan. Alberta is now conducting a royalty review

** Companies are bidding up government take in bid rounds: Libya, India

** Partial re-nationalizations: Russia (Gazprom), Venezuela, Bolivia

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government take increase 2003 2007 gas
Government Take Increase: 2003 – 2007Gas

Government take trend for gas is less clear.

Still considerable stranded gas reserves exist around the world.

Therefore government takes for gas in some countries may stabilize or continue to decline and governments may instead seek greater market access: Qatar, PNG, Peru, Venezuela, Norway, and Egypt.

Nevertheless some other governments are increasing government takes on gas: Nigeria, Russia, Bolivia and Algeria.

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other important trends large resource access
Other important trends:Large resource access

Private petroleum companies may gain access to large resources through political change:

  • Middle East – Iraq, Kuwait
  • Mexico

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other important trends global tax developments
Other important trends:Global tax developments
  • More homogeneous corporate income tax and continued decline of the corporate income tax rate.
  • Greater use of Value Added Taxes
  • Reduction of import duties and other cost based taxes

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other important trends increased diversity of government take
Other important trends:Increased diversity of government take

Special terms for:

  • natural gas
  • heavy oils, oil sands, oil shale, coal bed methane, gas hydrates
  • Frontier areas, deep water
  • Gas to Liquids (“GTL”)
  • Enhanced oil recovery or further field development contracts

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conclusions
Conclusions

The main new trends for oil and gas fiscal systems are:

  • a higher government take for oil
  • in some cases a higher government take for gas
  • lower corporate income tax
  • more diverse fiscal systems

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