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Oil Sector Management
presented by
Decio Hamilton BarbosaLuanda, Angola, May 2006
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Topics
• International practice with respect to the role of government ministries/agencies and NOC in overseeing oil sector operations
• Government/NOC fiduciary relationships
• Experience of Brazil
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World oil
• Government– Practically everywhere in the world, petroleum
resources are owned by the state• In the underground• Until produced• Until exported• Throughout the value chain
– US onshore, parts of Canada excepted– NOC sometimes acts in the role of owner for the state
• Private capital– Takes most of the risk, makes most of the investment,
conducts most of operations, pays the taxes / shares the production
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Host Government
• Owns– Practically everywhere (US onshore major exception)
• Legislates– Laws and agreements– Various government instruments
• Manages– Ministry, Agency, Regulator, NOC
• Invests– NOC
• Takes– Direct and indirect share of investments– Direct and indirect taxes and fiscal levies– Other requirements and obligations
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Role of the NOC
• Genesis– Participation– Nationalization
• Title holder of national (oil) resources– Oil, natural gas
• Contract administrator• Recipient (and seller) of state share of production• Importer
– Price stabilizer• Key component of national economy
– Employer / social security– Foreign currency player whether as both exporter or importer
• Investor– Indigenous– International
• Not all of the items above apply in all cases, and are gradually evolving ...
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IOC and NOC search synergy
IOC versus NOC
Production factors: Capital and Land
$ $Capital
Land
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• National Guardian / Monopolist– Original title-holder: PEMEX– Post-nationalization: Saudi ARAMCO, NIOC/NIGC, KOC (KPC)
• National Guardian and Regulator– Pertamina (pre-reform), PetroVietnam, Petronas, EGPC, NNPC, Sonatrach, Sonangol
• National Guardian and Foreign Investment Champion– Petronas, CNPC/CNOOC/Sinopec, PDVSA, NGC
• Domestic Investor (100% state owned)– OGDC, ONGC, SDFI
• National Wealth Participator– Petrobras, Statoil, PTTEP, YPFB (P.Andina / P.Chaco), CNPC/CNOOC/Sinopec
• Importing Nation Manager– ENAP
• Foreign Investment Champion– ENAP (Sipetrol), JNOC, KOC (Kufpec)
• Extinct– BNOC (Britoil), YPF, Repsol, PetroCanada (as NOC)
• Nouveaux Riches– Lukoil, Gasprom, Yukos, Sidanco, Sibneft, Rosneft
• Instruments of Forein Policy– BP, Shell, TotalFinaElf, ENI, ExxonMobil, ChevronTexaco
NOC TypesSimplified, arguable, roles continue to evolve ...
Source: Gaffney, Cline & Associates
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Regulatory Roles and Functions
• Contract management• Resource planning• Licensing• Depletion policy• Operations oversight• Health and Safety• Control of environmental sensitive areas• Market influence• Fiscal control• Employment• Goods and Services
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Who regulates ?
• Ministry• Classical administrator• Skills to NOC in many cases
• Agency• Board• Regulator
• NOC• Conflict of roles
• Sector regulation vs. commercial• Public interest vs. international standards
• Skills
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• Selected countries:
• What they have in commonE&P acreage area granted through bid rounds and
concession agreementsSignificant E&P offshore areas
Who regulates
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• Main E&P areas: Gulf of Mexico, Texas and Alaska
• Main regulator of E&P sector:
U. S. Department of Interior / Minerals Management Service - MMS (licensing of federal areas, royalties)
• Landowner has rights on the underground minerals• Extremely competitive industry: ~ 2 millions of royalty owners,
including 5.000 E&P companies
• Substantial source of income to government: • ~ US$ 6,0 billions / yr of leasing revenues• ~ US$ 5,6 billions / yr of royalties • ~ US$ 3,7 millions / yr of severeance taxes (state areas)
Regulator (s)
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• Main E&P areas : Onshore area in Province of Alberta and offshore areas in northeastern coast (Newfoundland and Nova Scotia)
• Regulators of E&P sector in such a provinces: Newfoundland - “Board” (concession) and Department of Mines and
Energy- DME (royalties) Nova Scotia - “Board” (concession) and Petroleum Directorate (royalties)
• Large oil and natural gas exporter to the US (~ 2 million boe / day) • Production concentrated in Province of Alberta (~ 60%)• Domestic market concentrated in east coast
Regulator (s)
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• Main E&P areas : Onshore West Australia (WA) and Queensland, offshore northwestern coast and Victoria coast
• Regulators of E&P sector in WA: Onshore licensing areas: Department of Minerals and Petroleum Resources
(DMPR) jointly with the Federal Government Offshore licensing areas : Federal Government by means of Petroleum and
Energy Division of the Commonwealth Department of Industry Tax and oil levies management:
Federal offshore areas (PRRT): Australian Taxation Office (ATO)
WA state onshore areas (royalties): DMPR
• Natural gas exporter, mainly to Japan, and oil importer: Indonesia is a significant oil supplier
Regulator (s)
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• Main E&P areas : Área “offshore” do Mar do Norte
• Regulators of E&P sector : Areas concession: Department of Trade and Industry (DTI) Management of government takes:
PRT / Royalty: Oil Taxation Office (OTO), subordinado ao
Inland Revenue Service
• Self-sufficient with respect to oil since 1980 and with respect to natural gas since 1996
• Production declining from 1999 onwards; several mature areas near abandonment
Regulator (s)
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• Main E&P areas : offshore: North Sea, Norwegian Sea and Barents Sea (frontier)
• Main regulators of E&P sector: Licensing: Ministry of Petroleum and Energy (MPE) Management of government takes:
Special Petroleum Tax (SPT): Oil Taxation Office,
Ministry of Finance
Royalties: Norwegian Petroleum Directorate (NPD),
Ministry of Petroleum and Energy
• Major exporter of oil and gas to Europe
Regulator (s)
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Experience of Brazil
From monopoly to regulator
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Institutional Evolution
1931193119311931 1934193419341934 1937193719371937 1945194519451945 19531953195319531938193819381938 1944194419441944 1995199519951995 1997199719971997
Decree 20,799 - Government Authorization
1934 Constitution - Concessions
1937 Constitution - Reserves: State property
CNP Set up CNP Set up
Lobato first oil finding (BA) Lobato first oil finding (BA)
Liberal Trend for Oil Sector Liberal Trend for Oil Sector
Law 2004 – Oil Monopoly / PETROBRAS Law 2004 – Oil Monopoly / PETROBRAS
9,795 Amendment - End of PETROBRAS Monopoly 9,795 Amendment - End of PETROBRAS Monopoly
Law 9,478 - ANP Law 9,478 - ANP
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• State monopoly from 1954 to 1995
• Risk Service Contracts in years 70 and 80
• Sole operator in early to mid 90s
• Oil Law (1997):– State grants E&P rights– Concessions through bid rounds
E&P activities in Brazil
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Four key processes:
Globalization: inevitable process – Brazil’s sovereign insertion in world context
Trade Liberalization: encourage competition of indigenous products with imported ones / increase competitiveness of local industry
National Currency Stabilization: resume economic planning activity and increased purchase power of low income population
Privatization / “state pull-out”: relieve the state of activities not related to its end activities and develop its skills to regulate (interfere in) sectors which render public services.
Changes in economy
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From Monopoly to State Regulator:
Necessity of investment to upgrade and extend infra-structureControversy of the role of an “entrepreneur state”Exhausted model regarding the direct involvement of the State in the economy
Results:
Reduction of inflation Insertion in international tradeAttraction of long term foreign capital (productive sector)Search of fiscal balance
Reasons of changing
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Dual role aspects
• Attract and foster E&P investments
• Licensing Rounds Division
• Regulator (control)
• Divisions responsible for the management of the concession agreement
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Foster E&P investments
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Regulator ( the watch dog)
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Not policy makers
Independents and skilled
Granted autonomy
Organized as a board
Board members with mandate for a given timeframe
and non-coincident with each other
Regulators in world context
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Thank you