Presentation on theme: "Contract Renegotiations and Other Recent Changes in the Oil and Gas Industries Juan Carlos Quiroz Matt Genasci Revenue Watch Institute."— Presentation transcript:
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 IFIs 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 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.
Drivers of change 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? Market conditions, prices and technology change overtime, while contracts assumptions and expectations remain fixed. So, change is almost inevitable. Renegotiation process around the world resembles a rental market with five cases: 1. Fearing eviction 2. Suffering a rent increase 3. Finding a good deal 4. A good location often cost a premium 5. Paying a condos utility bill
Overview of recent changes CasesToolsExamplesEffect 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 controls Argentina, Ecuador, Indonesia, Russia Increase government take; but often associated to fuel subsidies
Some conclusions 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 Matt Genasci Legal Analyst Revenue Watch Institute