asst8576 palantir sea fiscal analysis spe final
DESCRIPTION
A presentation made in SPE Singapore. Useful for UWA ASS8576 students.TRANSCRIPT
South East Asia Fiscal Regimes A Practitioner’s Analysis
SEA Consultant Team
1
SPE – Singapore Section Evening Talk April 11th, 2013 Presenter: Raj Sen
Agenda
• Introduction
• Importance of Fiscal Regimes
• Unique Features of SEA Fiscal Regimes
• Comparison of favourability of SEA fiscal regimes
• Key Findings / Tips
2
About Palantir Solutions
Palantir Solutions is a leading, global provider of
integrated, dynamic planning software and services to the
upstream oil and gas industry.
Palantir’s range of solutions and consulting services
transform business planning by connecting technologies,
functions and processes across the enterprise to enable
faster decision-making based on trusted data.
3
SEA Countries
4
Importance of Fiscal Systems
• Fiscal regimes are designed to
generate large share of
economic rent without deterring
contractor’s interest
• Broad classification:
– Royalty/Tax Systems (RT)
– Production Sharing
Contracts (PSC or PSA)
– Service Contracts (SC)
5
Required
return
Company
take
Government
take
Rev
enue
Act
ual
cost
sAct
ual
ben
efits
Eco
nom
ic c
ost
s
Eco
nom
ic r
ent
Exploration
capex
Appraisal capex
Development
capex
Opex
Abandonment
capex
• Governments earn a major share of their revenue from
the petroleum industry (high reliance).
Contribution to Government Revenue
6
Countries Contribution to
Govt. Revenue*
Brunei 90%
East Timor 60%
Malaysia 45%
Indonesia 25%
Vietnam 16%
*approximate figures
Unique Features of SEA Regimes
7
Countries Regime Type Unique Features
Indonesia PSC First Tranche Petroleum, Domestic Market Obligation, Investment Credit, Plan of
Development Ring-Fencing
Malaysia PSC R/C Index, Threshold Field Volume, Supplementary Tax, Investment Tax Allowance
(ITA)
Vietnam PSC Oil Surcharge Fee
Brunei PSC Windfall Profit Tax
Papua New Guinea RT Additional Profit Tax
Thailand RT Special Remuneration Benefit (SRB)
Burma (Myanmar) PSC Domestic Market Obligation
Philippines SC (PSC) Filipino Participation Incentive Allowance, Production Allowance
Timor-Leste PSC Supplemental Tax
Cambodia PSC Gas Profit Sharing (ROR based)
For Palantir’s free fiscal guides, visit: http://www.palantirsolutions.com/sign-in.aspx
Regime Complexity Ranking
8
4 4
5 5 5
6 6
7
8
10
0
1
2
3
4
5
6
7
8
9
10
PNG Thailand Brunei Myanmar Vietnam Philippines Timor Leste Cambodia Indonesia Malaysia
RT - without Unique Features 2
PSC - without Unique features 4
RT - with Unique Features 4
PSC - with Unique Features 6
Complex Calcs involved 8
Cyclic Calcs involved 10
• Behaviour of complex regimes can be unpredictable
• Proper sensitivity analysis is a must
• Ranking is based on unique features and complex calculations in a regime
Fiscal Stability Ranking
9
9 9 9
8 8
7 7
6
5
4
0
1
2
3
4
5
6
7
8
9
10
Malaysia PNG Philippines Indonesia Thailand Brunei Timor
Leste
Vietnam Cambodia Myanmar
Decreasing Stability Very Stable 10
Negotiable Terms 8
Gradually Stabilising 6
Variable Terms 4
Unstable 2
Fiscal regimes have been ranked based on:
• Evolution of fiscal regimes over time
• Frequency of changes/variations in contract terms in the recent past
10
Run Sensitivities & Run
Scenarios
Develop a Base Case
Price Sensitivity Field Size Sensitivity Fiscal Terms Sensitivity
$ $ $
NPV, PI, ROR, Govt Take
Ranking
Methodology of Analysis
Prospectivity
11
1 - Based on EIA 2011 reserves estimates
2 – Based on USGS 2010 resource estimates
0
10,000
20,000
30,000
40,000
50,000
60,000
Indonesia Malaysia Myanmar Papua New
Guinea
Thailand Vietnam East Timor Philippines Brunei Cambodia
MM
BO
E
Oil &Gas – Undiscovered Resources2
Gas Resources
Oil Resources
0
10,000
20,000
30,000
40,000
50,000
60,000
Indonesia Malaysia Vietnam Brunei Papua New
Guinea
Thailand Myanmar Philippines East Timor Cambodia
MM
BO
E
Oil & Gas – Proved Reserves1
Gas Proved Reserves
Oil Proved Reserves
12
Gas to Oil (%)
Major Basins Undiscovered Resource Distribution
Based on USGS 2010 resource estimates
Recent Trends in SEA
• Number of discoveries is rising
• Discovery success rate is good at around 25%
• But the field sizes are dropping
• Focus is mainly offshore (shallow and deep-water)
• A major challenge is developing offshore marginal fields
13
Base Case Small-Medium Gas/Condensate Field
Exploration Start & Discovery Date
2013
Production Start Date 2017
Location Offshore – Shallow Water
Reservoir Fluid Type Gas Condensate
Total Reserves 30 MMBOE (Gas: 150 BCF & Condensate: 5 MMBBL)
Total Capital Expenditure (Real 2013) 400 MM USD
Total Operational Expenditure (Real
2013) 410 MM USD
14
Base Price (Real 2013)
Oil Price 100 USD/BBL
Gas Price 8 USD/MMBTU
Low Price (Real 2013)
Oil Price 80 USD/BBL
Gas Price 6 USD/MMBTU
High Price (Real 2013)
Oil Price 120 USD/BBL
Gas Price 10 USD/MMBTU
Base FS - 30 MMBOE
Condensate 5 MMBBL
Gas 150 BCF
Low FS – 20 MMBOE
Condensate 3.3 MMBBL
Gas 100 BCF
High FS – 100 MMBOE
Condensate 16.7 MMBBL
Gas 500 BCF
Sensitivities:
Price Sensitivity – NPV10
15
-200
-150
-100
-50
0
50
100
150
200
250
300
NP
V1
0 (
MM
US
D)
High Price
Base Price
Low Price
*ranked by Base scenario
PNG positive in
all three case
Brunei and Myanmar
negative in all three cases.
16
-150
-100
-50
0
50
100
150
200
PNG East Timor Philippines Cambodia Thailand Vietnam Malaysia Indonesia Brunei Myanmar
NP
V 1
0 (
MM
US
D)
Base Price
-100
-50
0
50
100
150
200
250
300
PNG East Timor Philippines Cambodia Thailand Vietnam Malaysia Indonesia Myanmar Brunei
NP
V 1
0 (
MM
US
D)
High Price
-200
-150
-100
-50
0
50
100
PNG East Timor Thailand Philippines Cambodia Indonesia Malaysia Vietnam Brunei Myanmar
NP
V 1
0 (
MM
US
D)
Low Price
Thailand: Moves down in the
ranking order due to SRB tax.
Vietnam is more sensitive to price change than
Indonesia and thus moves down in ranking in
Low Case.
17
-200 -150 -100 -50 0 50 100 150 200 250 300
*sorted based on decreasing NPV10 range (High – Low)
Cambodia has no regressive
terms so upside fully captured.
Price Sensitivity – ROR
18
*ranked by Base scenario
0
5
10
15
20
25
RO
R (
%)
High Price
Base Price
Low Price
Price Sensitivity - DPI
19
*ranked by Base scenario
(0.60)
(0.30)
-
0.30
0.60
0.90
Profita
bility
Index
High Price
Base Price
Low Price
Break Even Price Analysis
20
• Oil price is kept constant
• Gas base price 8 USD/MMBTU (Real 2013)
4.32 5.72
6.48 6.80 7.20 8.20 8.64
9.36
20.56
25.65
0
4
8
12
16
20
24
28
Ga
s P
ric
e (
US
D /
MM
BT
U)
Not feasible!!
Field Size Sensitivity – NPV10
21
-200
-100
-
100
200
300
400
500
600
700
800
NP
V1
0 (
MM
US
D)
High FS
Base FS
Low FS
*ranked by Base scenario
Effect of discounting:
Contractor take increases at
the later stage of field life
Comparatively little upside in
High FS scenario due to SRB Tax
Unfavourable Fiscal Terms amplify time
value of money with larger investment.
22
-400
-200
-
200
400
600
800
PNG East Timor Philippines Cambodia Vietnam Malaysia Thailand Indonesia Myanmar Brunei
NP
V1
0 (
MM
US
D)
High FS
-150
-100
-50
-
50
100
150
PNG East Timor Thailand Philippines Cambodia Vietnam Malaysia Indonesia Brunei Myanmar
NP
V 1
0 (
MM
US
D)
Low FS
Thailand moves down in the ranking order
due to SRB tax
-150
-100
-50
-
50
100
150
200
PNG East Timor Philippines Cambodia Thailand Vietnam Malaysia Indonesia Brunei Myanmar
NP
V 1
0 (
MM
US
D)
Base FS
Field Size Sensitivity
Government Take Comparison
23
0%
20%
40%
60%
80%
100%
120%
Go
ve
rnm
en
t T
ak
e
High FS
Base FS
Low FS
Govt. take remains stable
Govt. take increases with Field
Size
*ranked by Base scenario
Discounted Govt. Take Analysis
24
Country Govt. Take Govt. Take Sum 10% Discounted Govt. Take
Sum
(Base Case) (%) (MM USD) (MM USD)
Thailand 71% 820 254
Malaysia 71% 819 266
-5
5
15
25
35
45
55
65
75
2013 2018 2023 2028 2033 2038 2043 2048
Go
vt.
Ta
ke
Su
m (
MM
US
D)
Thailand
Malaysia
Disc Thailand
Disc Malaysia
Disc Factor 0.39 0.15 0.06 0.02 1
Fiscal Terms Sensitivity
Fiscal-terms sensitivity analysis becomes significant
when:
– Fiscal terms are biddable or negotiable
– Uncertainties arise in existing terms
– Fiscal terms change frequently
– Allowances/incentives impact economics
25
1%
8%
11%
27%
53%
0% 10% 20% 30% 40% 50%
Cost Recovery Limit (50% - 100%)
Royalty Oil (0% - 12.5%)
Royalty Gas (0% - 12.5%)
Profit Oil Sharing Rate (40% -80%)
Profit Gas Sharing Rate (35% -80%)
% Variance in NPV10
Myanmar
26
Impact of Profit Sharing
Rate on NPV is higher
than other variables
Existing Terms:
• Royalty Rate is 12.5%
• Cost Recovery Limit is 50%
• Oil Contractor Profit Split 40%
• Gas Contractor Profit Split 35%
Operating a marginal field with these
Fiscal Terms is not viable!
Negotiation of contract terms is
possible
Impact of Cost Recovery
Limit on NPV is very low
Myanmar
27
Negotiation/ Bidding
Example: Contractor Profit Sharing Rate Optimisation
Malaysia • Marginal Oil and gas projects could be eligible for ITA (Investment Tax
Allowance)
28
The contractor take increases by 7% and NPV10 becomes positive
35.10
64.90 19.05
28.00
6.60
11.25
0
20
40
60
80
100
120
%
After applying ITA
28.55
71.45 19.05
28.00
6.60
17.80
0
20
40
60
80
100
120
%
Without ITA
NPV10 = 19.68 MM USD NPV10 = -18.30 MM USD
Malaysia Risk Service Contract
• Introduced Risk Service Contracts for Marginal Fields
• Main features are as follows:
– The contractor and Petronas develops the fields through joint
venture
– The contractor is allowed to recover the costs incurred and a
remuneration fee is paid for the service
– The contractor is taxed at a rate of 25% comparing to Petroleum Tax
rate of 38%
– Petronas is still taxed at a rate of 38%
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Government Take Summary
30
Key Findings
• PNG and East Timor appear to have the most favourable
fiscal structure, but must consider costs in these countries.
• Brunei and Myanmar fiscal structures are simply too harsh
for small/medium gas field development.
• Government Take in Thailand increases significantly as the
field size increases.
• Very challenging for projects in SEA to compete globally for
capital under current regional fiscal terms.
Huge Implications for SEA Upstream Industry!!!
31
Practitioner’s Tips • Look at the range of Government Take – not just discrete values.
• Consider Discounted Government Take to understand the impact of timing of
government payment.
• Look at Economic Limit to determine if premature abandonment occurs (may be
able to negotiate fiscal term to extend life of project).
• Understand which fiscal terms have the largest (and smallest) impact on project
economics, especially biddable / negotiable terms.
• Identify outliers and variations to trends and ensure these can be explained.
• Analyse the unique features of each regime – they are there for a reason.
• Qualitative analysis can be as important as economic analysis.
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Thank You
33