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Analyzing Competitiveness Fiscal Regimes Consultant’s Perspective Irena Agalliu, Managing Director July 30, 2013 USAEE Conference, Anchorage
© 2013 IHS Race to the ‘top” or race to the ‘bottom”?
© 2013 IHS Why Competitiveness Review? 3 2003 2004 2005 2006 200720082009201020112012 2013 Colombia Turkey Pakistan Kazakhstan Belize Vietnam Portugal Spain Ukraine India PNG Oman Norway Poland Tanzania Russia UK Mingolia Falkland Islands Denmark PNG Greece Cambodia Frence Australia New Zealand Senegal Guatemela Nigeria Algeria Libya Russia East Timor Romania Algeria Benin Poland Venezuela China Argentina Jordan Equatorial Guinea Alaska Bolivia Alberta Ecuador Turkey Bulgaria Hungary Romania Uzbekistan Azerbaijan Netherlands Russia East Timor Cameroon T&T UK South Africa Oman Mexico Kyrgystan Germany Ireland China Argentina Belize Ecuador Alaska Ukraine US-GOM Chad Poland Vietnam Thailand Bolivia Guinea Bissau Indonesia Angola Nigeria Pakistan Libya India Alberta Newfoundland Guinea Bissau Yemen Cyprus DRC Iceland Venezuela Sri Lanka Nova Scotia Niger Venezuela Colombia Kazakhstan Egypt US-GOM Angola Russia India Indonesia Hungary New Zealand Hungary Yemen Vietnam Albania Kyrgystan Bangladesh British Columbia Argentina Falkland Islands Tanzania Suriname PNG Turkmenistan Spain Mozambique UK India Alberta Brunei Kazakhstan Germany Czech Republic Qatar Pakistan Vietnam Alberta Kazakhstan Indonesia Netherlands Russia Brazil Alaska Uzbekistan Hungary Portugal UK Vietnam Ecuador T&T Israel Yemen Russia Australia Kazakhstan UK Alberta Colombia Ukraine Alaska Malaysia Pakistan Israel Egypt Colombia UK Australia Bangladesh India Ukraine Indonesia Myanmar Peru T&T Iraq UK Argentina Brazil Russia Norway Alaska Italy Poland Sri Lanka Algeria
© 2013 IHS Objective of Review Most common objective “Fair share” or “Fair return” There is universal consensus that the government and the public should receive a fair share of the revenue from the oil and gas resources. There is no standard or benchmark as to what that means Wade Locke – “fair share is a judgment or opinion that can neither be refuted nor proven” Alberta Royalty Review 2007 – recognized the inherently subjective nature of the fair share concept. Yet - concluded that Alberta was not receiving its fair share - without properly defining the benchmark or justifying the reasoning for such a conclusion. 4
© 2013 IHS Effective Competitiveness Review The review is accompanied with market analysis The peer group is properly identified Actual finding and development costs are being used There is a realistic perception of the resource potential 5
© 2013 IHS Market – The Best Indicator 6 Interior Revenue from OCS ACES Introduced
© 2013 IHS Peer Group Selection Similar government objectives Whether the jurisdiction competes for investment in the global or regional market Type of resources Success of the particular jurisdiction in attracting investment Types of investors: global versus small regional investors Common characteristics with respect to market challenges cost of development 7
© 2013 IHS Reserves and Price and Cost Assumptions Size and availability of remaining recoverable reserves Looking at actual fields in each jurisdiction versus hypothetical oil and gas fields Reliance on hypothetical models Limited applicability – mainly theoretical Finding and development costs – mirror each investment environment Actual costs Technological challenges associated with each resource type Well productivity Water depth Distance from market, etc. Varying Commodity Prices Different market prices for gas Price differentials to account for quality of crude Netback pricing to for cost of transportation 8
© 2013 IHS Selecting the Peer Group – E&P Activity Scorecard 9 Field Sizes per New-field Wildcats E&P Activity Scorecard
© 2013 IHS COMPANIES Finding Common Ground NPV IRR PI EMV GOVERNMENT TAKE GOVERNMENTS What should be the basis for comparison?
© 2013 IHS Why not rely on Government Take alone? 11
© 2013 IHS Composite Index 12
© 2013 IHS Fiscal Terms Index Combines government take with measures of profitability Examines the relationship between project profitability and government take Regressive fiscal systems relationship is inverse – government take declines as profitability increases and vice versa Progressive fiscal systems direct relationship - government take increases as profitability goes up 13 Score 5 Score 0 Low Government Take High IRR High PI Neutral Fiscal System High Government Take Low IRR Low PI Regressive/Progressive Fiscal System
© 2013 IHS Ranking of Fiscal Systems 14
© 2013 IHS Is Ranking Sufficient? Ranking eliminates fields with zero IRR Perhaps such resources will not be developed In-depth analysis needs to consider under what terms such fields may become profitable – if at all Ranking assumes there will be a market for the stranded gas Is being in the middle of the pack incentive enough to develop the needed infrastructure? Should the same terms apply to oil and gas? While ranking provides a measure for comparison, it does not necessarily offer confidence that the system is perceived to be fair by the market forces. The market test is often the best test for the fairness of a fiscal system – such test is not without risk. 15
© 2013 IHS 16 IHS Offerings Specialized Information Databases Software Information Systems and Intelligence Networks Publications and Reports Summits and Conferences Advisory Services and Research Consulting Advancing Decision Across the Oil and Gas Value Chain Questions?
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