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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

Analyzing Competitiveness Fiscal Regimes

Consultant’s Perspective

Irena Agalliu, Managing Director

July 30, 2013USAEE Conference, Anchorage



Why competitiveness review
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


Objective of review
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.


Effective competitiveness review
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


Market the best indicator
Market – The Best Indicator

Interior Revenue from OCS

ACES Introduced


Peer group selection
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


Reserves and price and cost assumptions
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


Selecting the peer group e p activity scorecard
Selecting the Peer Group – E&P Activity Scorecard

E&P Activity Scorecard

Field Sizes per New-field Wildcats


Analyzing competitiveness fiscal regimes

What should be the basis for comparison?

GOVERNMENT TAKE

Finding Common Ground

GOVERNMENTS

EMV

NPV

IRR

PI

COMPANIES




Fiscal terms index
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



Is ranking sufficient
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.


Questions
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