Transcript Contract Renegotiations and Other Recent Changes in the

Contract Renegotiations and Other
Recent Changes in the Oil and Gas
Industries
Juan Carlos Quiroz
Matt Genasci
Revenue Watch Institute
Recent changes in contracts and
fiscal terms
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IFI’s often warn countries that changes in contractual
terms would undermine their competitiveness.
Countries who change rules are seen as unreliable
partners.
However, more than 30 oil and gas producers have
revised their contracts or fiscal terms since 1999.
Change has two directions: on the one hand,
increase of government share of profits through
royalties, taxes and windfall taxes. On the other,
many countries still willing to offer incentives to
attract investment.
Table 1. Recent changes in Government Take.
1999
2000
Reduced
Government
Take
Canada (BC)
Colombia
Namibia
Nigeria (gas)
UK
Australia
Canada
(Fed)
Italy
Morocco
Netherlands
Increased
Government
Take
India
2004
Russia
Reduced
Government
Take
Australia
Colombia
New Zealand
Norway
Peru
Vietnam
Increased
Government
Take
Argentina
Brazil
Denmark
Kazakhstan
Pakistan
Russia
Brazil
Indonesia
Kazakhstan
Norway
Algeria *
Bolivia
Lybia
Nigeria (d/w)
Nigeria
(gas)?
Venezuela
Alaska
Algeria
Bolivia
Venezuela
Canada (AB)
Ecuador
Kazakhstan
Venezuela
2005
USA (GOM)
Norway
Peru
Philippines
2006
Thailand
2001
Australia
Ecuador
Denmark
Egypt
Netherlands
Indonesia
2007 Mexico **
Pakistan
2002
Canada (AB) Argentina
Canda (SK)
Russia
India
UK
Netherlands
Venezuela
Peru
2003
Indonesia
Egypt
Italy
Netherlands
P.N.G.
Nigeria (d/w)
Syria
Russia
UK
Sudan
* Self-inflicted in bids
** Reduced taxes for national oil company.
Source: Wood Mackenzie, "The terms, they are changin'…", Industry
Research, August 2006, available at www.woodmac.com
For 2006 and 2007, RWI research in different publications, not an exhaustive
list.
Drivers of change
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Prices: record-high oil price highlights inadequacies in
contracts signed under low-price conditions.
Control: some government want greater control over
petroleum sector (e.g. to leverage public policies, equity
gains, patronage) or resource nationalism.
Competition: most hydrocarbon reserves are hold by
NOC and more players compete for new acreage, which
provides countries an opportunity to impose tougher
terms and makes companies willing to pay.
Incentives to investment: reducing government take is
still common in mature producers, net energy importers,
frontier areas, marginal fields, deepwater projects.
What does change mean?
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Market conditions, prices and technology change
overtime, while contract’s assumptions and
expectations remain fixed. So, change is almost
inevitable.
Renegotiation process around the world resembles
a rental market with five “cases”:
1.
2.
3.
4.
5.
Fearing eviction
Suffering a rent increase
Finding a good deal
A good location often cost a “premium”
Paying a condo’s utility bill
Overview of recent changes
Cases
Tools
Examples
Effect
Eviction
Nationalization,
expropriation, change
of rules or contract,
increase of taxes
Bolivia, Ecuador,
Kazakhstan
(Kashagan), Russia
(Sakhalin 2),
Venezuela
Increase government
take; also change
of operator or
participation
Rent increase
Royalties, taxes, special
duties, profit oil share,
windfall taxes, cost
recovery limits
Alaska, Alberta, Algeria,
Angola, Bolivia,
Ecuador, Nigeria, UK
Increase government
take; but need to
consider incentives
if any, affects
companies and
fields differently
Offering incentives
Royalty holidays, tax cuts,
cost recovery
provisions, price
protections, market
liberalization,
regulatory quality
Brazil, Colombia,
Indonesia, UK, USA
Reduce government
take; but intends to
promote
investment,
exploration,
production
Premium payments
Basically higher than
expected signature
bonuses or market
obligations in bidding
rounds
Angola and Nigeria,
reports from Algeria
and Libya
Increase government
take; but increase
cost of
development, risk
of overbidding
Utility bill
Crypto taxes, domestic
market obligations,
export duties, price
Argentina, Ecuador,
Indonesia, Russia
Increase government
take; but often
associated to fuel
Some conclusions
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Change is more common than acknowledged; it is inherent
in prices, markets, technology and expectations
Contracts balance risk and expectations about future profits
sharing, therefore it is important to introduce some flexible
and progressive measures
Companies accept several levels of profit share
renegotiation, provided ventures are not turned
uneconomical
Public and open bidding rounds have helped some
countries to increase their share of profits
Transparency and regulatory improvements also attract
investment
Merci beaucoup!
Contact information:
Juan Carlos Quiroz
Policy Analyst
Revenue Watch Institute
[email protected]
Matt Genasci
Legal Analyst
Revenue Watch Institute
[email protected]