Transcript WORLD FISCAL SYSTEMS FOR OIL AND GAS

Trends in petroleum fiscal systems
A host government perspective
Pedro van Meurs
October 20, 2009
AIPN
Bangkok - Thailand
Van Meurs Corporation
Nassau, Bahamas
Tel: (242) 324-4438
e-mail: [email protected]
Oil and Gas Resource Ownership
In most countries in the world the State is the owner of the oil and
gas in the subsoil.
Governments have therefore the right to maximize the benefits
from petroleum production for their citizens.
Important benefits are the government revenues to be derived
from oil and gas.
The word “fiscal” is used in this presentation in a general sense
and includes all government revenues
The government revenues as a percentage of the total divisible
income (revenues less costs) is defined as “government take”
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Mega Trends of Government Take
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,
technological)
2003 – 2008: increases in government take:
-- Increase in oil prices and also greater volatility of oil
and gas prices
-- No more new acreage
2009 - ?: uncertainty
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Trends in Government Take
2003 – 2008
During the 2003 – 2008 period the government
take has increased in many countries.
This has been due to two factors:
 The increases in oil prices, which increased
demand for new investment opportunities
 The shortage of available areas for exploration
and production, because most of the world
petroleum basins are now under licenses or
contracts.
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Trends in Government Take
2003 – 2008
The methods for increases in government take
were different in the various countries.
A number of countries had already created fiscal
systems that automatically resulted in a higher
government take under higher oil prices.
Examples:
 Angola
 Malaysia
 Trinidad and Tobago
 India,
 Libya, and
 Russia
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Trends in Oil Taxation
2003 – 2008
Other countries used other methods to increase
the government take, such as:
Changing the fiscal terms: UK, Alaska,
Alberta, Algeria, Bolivia and Kazakhstan.
 Using the bid system for new acreage to
increase terms: Libya, India
 Creating higher levels of state participation:
Venezuela, Algeria, or
 New legislation and renegotiations: Nigeria

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Trends in Government Take for Gas
2003 – 2008
Increases in government take for gas have been much
less because there are still considerable gas reserves
around the world.
Therefore government takes for gas in some countries
stabilized or continued to decline and governments seek
instead greater market access: Qatar, Venezuela,
Norway and Egypt.
However, government takes for gas have also increased
in some jurisdictions: Algeria, Bolivia, UK, Trinidad &
Tobago
An important international trend is that government
revenue systems for oil and for gas are becoming more
different, in particular in those countries where gas has
to be transported over large distances to market, either
as LNG or by pipeline.
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Future trends in Government Take
2009 - 2010: Short term
In the short term there is a downward pressure
on government take due to the financial crisis.
Russia reduced its Mineral Extraction Tax and
more importantly, exempted Eastern Siberian oil
fields from export tax.
Trinidad and Tobago may offer more attractive
terms in its upcoming bidding rounds.
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Future trends in Government Take
2010 - 2050: Very Long term
The very long term future of the oil industry is more uncertain
than ever. The IEA predicts that oil demand in 2009 will be about
84 million barrels per day.
Broadly three rather different scenarios of future oil demand are
possible for 2050:
 Continued increases in oil demand resulting in a demand of
about 130 million barrel per day, which is predicted by some oil
companies.
 The so-called “peak oil” concept whereby oil demand is
constrained by production and will reach a peak of about 100
million barrels per day over the next two decades and will decline
thereafter, which is predicted by the company TOTAL and
others.
 A climate change driven scenario whereby oil demand has to be
gradually reduced to maybe as low as 50 million barrels per day
in order to meet the objective of reducing CO2 emissions by 50%
on a world wide basis as currently advocated by the G8 nations.
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Future trends in Government Take
2010 - 2050: Very Long term
I agree with TOTAL that the peak oil scenario is a probable
scenario.
Oil will not reach a peak because oil “runs out”, but because
political and government take conditions simply will not make it
possible to produce more.
There are many examples of such restrictions:
 Venezuela
- Slow development of Orinoco heavy oil belt
 Kuwait
- No service contract on North Kuwait
 Iraq
- A largely failed bidding round
 Brazil
- Increased Brazilian (state) ownership of new
deep water developments
 Mexico
- Strong political opposition to large scale
foreign investment despite Reform package
 Iran
- Continued political problems and unattractive
service contracts
 Russia
- Only modest foreign investment
 World wide
- Continued emphasis on royalties and cost
limits in PSCs, which impede
development of
marginal fields
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Future trends in Government Take
2010 - 2050: Very Long term
The upcoming conference in Copenhagen regarding climate
change will largely determine the long term trend in the use of
fossil fuels and a declining oil consumption scenario may become
more likely if this conference is successful.
The “oil era” may not come to an end due to lack of oil, but
simply because it becomes unacceptable to burn it.
The governments of the world are still largely schizophrenic with
respect to climate policies and energy consumption/taxation
policies.
Electricity prices and petroleum products are still subsidized in
many nations (Russia, China, India, most OPEC countries,
including Nigeria).
I agree with ExxonMobil that it is necessary to introduce carbon
taxes in order to promote an orderly transition from coal and oil
to natural gas in the medium term and to renewable resources in
the long term. Carbon credit markets are too volatile and
implementation is too weak to rely upon it as the main instrument
for reducing CO2 emissions.
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Future trends in Government Take
2010 - 2020: Medium term
Against the back ground of a highly uncertain long term
future, governments are now faced with the task to
maximize the benefits from oil and gas production in the
next decades.
If the “peak oil” scenario unfolds in the medium term,
oil prices may increase and government takes may go up
in various countries.
Governments of oil and gas exporting countries face a
difficult task, due to the fact that government budgets
are too dependent on oil and gas revenues.
The process of maximizing benefits from oil and gas,
has to proceed while diversifying their economies.
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Future trends in government take structure
2010 – 2020: Medium term
The main trends in the structure of the oil and
gas government take are the following:
 Reduction of corporate income tax rates
 Globalization of VAT
 Possible wider introduction of carbon taxes
 Reduction of import duties and cost base taxes
 More emphasis on price sensitive fiscal features
 Less emphasis on taxation structures that overencourage capital investment
 Transition to fiscal structures designed for
“expensive” oil and gas resources.
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Reduction of Corporate Income Tax rates
An important international trend is that
corporate income tax rates are declining.
15 years ago profit tax rates were in the range
from 25% – 55%.
Today, most countries are in the 15% – 40%
range.
Several petroleum producing nations maintained
or established a higher rate for the petroleum
industry or introduced hydrocarbon taxes.
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More emphasis on price based
petroleum government revenues
The high oil prices of the last few years have made
governments aware of the fact that oil and gas
government revenues have to be designed to increase
government take under higher prices. As mentioned
before, a number of nations had already price sensitive
government take.
Other jurisdictions have now also established or
strengthened such mechanisms, including:
 Alberta (royalties)
 Alaska (profit tax)
 China
(windfall profit tax)
 Algeria (windfall profit tax)
Nigeria has introduced a new bill (Petroleum Industry
Bill) which contemplates price sensitive royalties as well
as hydrocarbon taxes
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Transition to more expensive resources
Due to the high price levels of US $ 60 or higher, many
countries are now in a transition to make more
expensive resources attractive for investment with more
diverse or flexible fiscal terms.
Examples of such new resources are:
 heavy oils, oil sands, oil shales
 coal bed methane, shale gas, gas hydrates
 Frontier areas, deep water
 Gas to Liquids (“GTL”) and LNG
 Enhanced oil recovery in existing fields
In order to maintain revenues governments from oil
exporting countries may increasingly apply (“old oil”
versus “new oil” concepts.
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Changes in the nature of petroleum
arrangements
The new trends will also bring changes in the
nature of petroleum arrangements:
 smaller blocks – more competition:
– more legislation/bidding,
– less negotiation for new blocks
fiscal stability provisions will be reduced.
Where fiscal stability provisions continue to exist
they will be restricted in terms of:

– time,
– volume, and/or
– economic indicators
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Conclusion
It can be expected that in the medium term the
world will continue to experience significant
changes in the level of government take and the
structure of oil and gas fiscal systems.
Much of these changes will apply to existing
operations.
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