Home >Business >3. oil and regularity regime.ppt

3. oil and regularity regime.ppt

Date post:20-May-2015
View:1,433 times
Download:1 times
Share this document with a friend
  • 1. Petroleum Regulatory Framework

2. Petroleum Regime Framework CONSTITUTIONLegislativ e/Regulato ryPETROLEUM LAWS/ REGULATIONSE & P BUSINESS REGIMESCONCESSIONJOINT VENTURESERVICE CONTRACTHYBRIDPSC 3. Global Energy Resources Management Structure More countries adopting the "separation of roles for Resource ManagementMinistryRegulatorPolicyRegulationsNOC/IOC/ JVBusiness 4. Pillars of Oil & Gas Regulatory RegimesA good Oil & Gas Regulatory Regime addresses certain major regulatory issues in a satisfactory way: The Right to Monetize Resources Fiscal and Contract Stability Enforceability of Contract A regulatory regime that fails on any one of these points puts its investment favorability at risk 5. Countrys Objectives for Petroleum DevelopmentEconomic Agenda Accelerate exploration petroleum resources&exploitationof Invite Investments in E & P Sector Generate revenues from taxes and take Obtain technology transfer & Know-how Stimulate competition in the E & P sector Create employment and materials preference 6. Countrys Objectives for Petroleum DevelopmentPolitical & Social Agenda Make NOCs competitive by providing a level playing field Respond to PopulationstheInterestsof Protect & Preserve the EnvironmentLocal 7. Measures to promote Exploration No Signature Bonuses No high rentals during exploration Reasonable taxation & royalties 100% Cost Recovery for exploration & development High Cost Recovery Limit Import duty exemption for exploration and development Assured Contract validity 8. Approaches to Resource Exploitation Many developed countries use unilateral licensing/leasing approach Many developing countries use consensual approach and prefer mining agreements Political will of host country to develop resources is key and expressed through regulatory instruments, contractual obligations, national policies and guidelines 9. Types of Agreements A Comparative Study 10. Types of AgreementsConcessionsJoint VenturesService ContractsProduction ContractsHybridsSharingContracts/RiskSharing 11. Concession Contractor has exclusive rights to explore, develop, sell, and export oil/gas from a specified area for a fixed period of time Equity or Royalty & Tax structure Maximum control to Contractor Oldest & most widely used 12. Joint Venture Private/Foreign Companies and NOC form a Joint Venture Each JV partner pays/receives its share in proportion to its Participating Interest. JV pays royalty, income tax and usually some form of Petroleum Revenue Tax (PRT) Low success rate, less commonly used 13. Service Contract Contractor pays all exploration and development costs Contractor works under governments mandate and is paid for its work Government maintains ownership and title of minerals Most suitable for Contractor for risk-free operations and for States having Producing Assets 14. Hybrids Combinations of Concession/JV/PSC, royalty, tax, cost oil/profit oil shares and fees etc. Efforts to develop a world model Hybrid agreement have been unsuccessful because structures are becoming more diverse Host governments seeking structures that suit their particular needs 15. Production Sharing Contract State enters into a PSC with Contractor periodfor a specified Contractor finances exploration and development If successful, Contractor will recover its costs and earn a profit by receiving a share of production Royalty & Income Tax are paid as applicable Significant control contractual controlstoContractors,butStatehas 16. Comparative Analysis of Agreements TYPE OF AGREEMENTSCONTRACTORCONCESSIONALL RISKGOVERNMENTREWARD IS A FUNCTION OF PRODUCTION & PRICEALL REWARD JOINT VENTURESHARE IN RISK & REWARDSHARE IN RISK & REWARDSERVICE CONTRACTNO RISKALL RISK ALL REWARDHYBRIDMIXEDMIXEDPSCEXPLORATION RISKSHARE IN REWARD 16SHARE IN REWARD 17. Comparative Analysis of Agreements TYPE OF AGREEMENTSEXCLUSIVE RIGHTS TO EXPLORE AND PRODUCEOWNERSHIP OF PRODUCTIONCONCESSIONOPERATING COMPANYOPERATING COMPANYJOINT VENTURESHAREDSHAREDSERVICE CONTRACTSTATE THROUGH SERVICE COMPANYSTATEHYBRIDMIXEDMIXEDPSCOPERATING COMPANYSTATE 17 18. Usage of Contract Types TYPE OF AGREEMENTSNUMBER OF COUNTRIES UTILIZING THIS TYPECONCESSION59JOINT VENTURE31SERVICE CONTRACT3HYBRID16PSC40Source: CWC Workshop, 2008 19. Countries and Agreement Types TYPE OF AGREEMENTSCOUNTRIES UTILIZINGCONCESSIONS (59)UK, US , Norway, Australia, Canada, Peru, Namibia, Thailand, Sudan, Ecuador, Kuwait, BahamasJOINT VENTURES (31)Colombia, Cameroon, Netherlands, PakistanPSC (40)Egypt, Yemen, Angola, Indonesia, India, Bangladesh, Guatemala, Sri LankaSERVICE CONTRACTS (3)Iran , Mexico & OmanHYBRID (16)Libya, China, Malaysia, Kenya, Tanzania, Gabon, Myanmar 20. Concession Agreements ADVANTAGESDISADVANTAGESIf production occurs, government earns royalties and/or profit tax. Both are based on the quantity produced and the price at which commodity is sold Successful bidder pays bidder price (usually license fee and/or signature bonus)Government may not realize full potential through possible extensive explorationCompanies will be cautious in bidding for uncertain returns in virgin/non-proven areas. Not suitable for countries seeking extensive exploratory inputs through bidding systems 21. Joint Venture Agreements ADVANTAGESDISADVANTAGESGovernment is not alone in the Risks and costs are also shared. decision-making and responsibility Country needs to share Risk for a project Capital. Not suitable for countries needing huge investment on explorationGovernment can count on expertise Responsibility also brings with it of oil company potential liability such as for environmental damage Government shares profit, on top of taxes or royalties 22. Service Agreements ADVANTAGESDISADVANTAGESPayment is made for services Suitable for Producing Assets. at pre-determined rate Not much relevant for explorationMost energy companies reluctant to sell services and technology for a Turnkey Contract as earning is more limited 23. Hybrid Agreements ADVANTAGESDISADVANTAGESIncorporates the best of Diverse & Complex structures of Concession, JV, PSC, Royalty & Model. Difficult to estimate optimal Taxes Govt./Contractors takes & achieve equilibrium for a win-win situation for both partiesRequires expertise negotiation skillsand 24. Production Sharing Contracts ADVANTAGESDISADVANTAGESIt is considered the most attractive investment model for inviting Risk Capital and has been successful in attracting foreign/private investment to get unexplored areas explored at no cost to the governmentRigidity with regard to contractual provisions throughout the contract period.Contractor enjoys considerable autonomy in running the exploration and production operations & leaves no stone unturned to ensure exploration success in order to be entitled for Cost RecoveryNo flexibility for adjusting unplanned situations.to 25. Production Sharing Contracts ADVANTAGES Allows for the recovery of invested sunk cost by the Contractors only in case of successful ventures. Government shares potential profits without having to make a direct investment.Entire cost Contractor commences.loaded on the till recoveryDISADVANTAGES 26. Production Sharing ContractsIndia 27. Historical Background First concept for PSC was introduced in Bolivia in 1950 PSCs were successfully implemented in Indonesia in 1966 PSCs are being widely used in more than 40 countries In India, first PSC was signed in 1993 for a Pre-NELPBlock 231 Exploration PSCs have been signed so far 28. Legal Framework Constitution of India, 1950The Oilfields (Regulation and Development) Act, 1948The Petroleum and Natural Gas Rules, 1959 & AmendmentsTerritorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976Income Tax Act, 1961Customs Act, 1962Foreign Exchange Management Act, 1999Environment Protection Act, 1986Arbitration and Conciliation Act, 1996 29. Effective Regulatory Mechanism Hydrocarbon Sector Vision Ministry of Petroleum & Natural GasPrime Ministers Office Managing Resource Base Role for different sectors in energy fuel mixPlanning Com Bringing Accountability Managing Licensing Mandate for Data Repository1950s-93Investing Capital and TechnologyNATIONAL OIL COMPANIES 1993+REGULATOR Upstream DGHDownstream Gas RegulatorOPERATOR Public (Central) ONGC OIL GAILPublic (State) GSPCPrivate Reliance Jubilant Videocon EssarForeign BG ENI Cairn Niko 30. Highlights of NELP PSC Production Sharing Contracts signed with Government based on Pre Tax Investment Multiple (PTIM) Trenches Low Royalty Rates Royalty is Cost Recoverable No Cess or Customs Duty Freedom to contractor to market Oil and Gas in the domestic market at Market Determined Price 100% Cost Recovery of Exploration & Development expenditure 31. Production Sharing Contract Attributes Contract term Relinquishment Management Committee Discovery, Development & Production Unit Development Cost Recovery & Production Sharing Taxes, Royalties & Rentals Domestic sourcing & supply obligations Employment & training Title to assets 32. Petroleum Expenditure & Revenue Profile Costs RevenuesExploratio n$Developmen t& Appraisal5Production102030Abandonment & Reclamation40 33. Cash Flows Under PSC Regime Production value RoyaltyCost PetroleumProduction ExplorationProfit PetroleumContractors shareIncome taxContractors takeDevelopmentGovernments share Governments take 34. Pre Tax Investment Multiple (PTIM) Gross Revenue Cost Petroleum (includes Royalty, OPEX and allowed cost recovery of CAPEX)Profit Petroleum ( Contractor & Government)Contractors Take Petroleum= Cost Petroleum + Contractors share of ProfitContractors Net Income +Royalty )= Contractors Take ( Production cost (OPEX)Contractors Cumulative Net Income PTIM=Cumulative Exploration & Development cost

Popular Tags:

Click here to load reader

Reader Image
Embed Size (px)