技术经济学英文版演示文稿C43

1、4.3.5 Production Sharing ContractProduction sharing contract was first signed between Pertamina (national oil company of Indonesian government) and Mobil in 1966. Subsequently, production sharing contract became extremely popular among the non-OPEC countries. Today, it is the most widely used contra

2、ct between the host country and an international oil company.1The basic difference between the production sharing contract and the concession agreement is the extent of control exercised(行使) by the host country in day to day operations. By being a partner in the operation of a field, the host countr

3、y can monitor(监控) as well as participate in the decision making process. 2As in the case of concession agreement, the host country will open up certain concession areas for bidding purposes. The international oil company will bid on the concession, and offer several incentives(动机) including the sign

4、ing bonus and work program, to receive a contract. If successful, the host country will sign a production sharing contract with the international oil company.3Some of the key features of production sharing contract are:* The international oil company, solely at risk, has the exclusive right(专营权) to

5、explore for and exploit petroleum reserves in a concession area. The company is responsible for the exploration costs associated with these rights.* If the exploration effort is successful, the international oil company is allowed to recover the exploration costs from the future production from the

6、contract area.* Any production belongs to the host country.4* After recovering the cost from the production proceeds, the balance(余额) of production is shared on a pre-determined percentage split between the host country and the international oil company.* The income of the international oil company

7、is subject to income taxes.* Equipment and installations are the property of the host country. This can happen at the onset of production or progressively(日益增多地) in accordance with(依照) the agreed upon schedule.5The main advantage of production sharing contract is that the host country can develop it

8、s own natural resources at no cost without losing the managerial control of the overall operation. Further, by acquiring equipment and installations, it can develop the necessary infra-structure for future development. The host country can also benefit by having the domestic personnel working direct

9、ly with personnel from the international oil company and gaining valuable experience.6The schematic(示意) of the overall cash flow calculations is shown in Figure.4.13 for standard production sharing contract. As shown, the contractor can recover the operating, capitalized (through depreciation) and e

10、xploration costs from the gross revenue. The remaining revenue, call profit oil, is split between the host country and the contractor based on the agreed upon formula. This formula may involve a volume related sliding scale. The contractors share of profit oil is subject to income taxes.7Gross Reven

11、ue1000Operating, Capitalized and Exploration Costs(Cost Recovery )400Profit Oil600Contractors Share300Host Countrys Share 50%=300Income Tax 50%=150Net Cash Flow 50%=150Host Countrys ShareFigure 4.13: Cash flow profilefor production sharing contractLessEqual ToEqual ToLessEqual To8Some variations of

12、this standard production sharing contract include assessment of royalty based on the gross revenue before cost recovery; or, contractors share of profit oil is not subject to income tax. All these variations will change some calculations. Overall, though, the host countrys share in production sharin

13、g contract is rarely less than 50%.The following examples illustrate the application of production sharing contract on the economic evaluation of a project.9Example 4.20 A production sharing contract is signed between the host country and an international oil company. The contract calls for a profit

14、 oil share of 60% with an income tax rate of 50% on the taxable income. The capitalized costs are to be depreciated over a seven year period using double declining balance method with the balance to be depreciated in the seventh year. The expected costs and other relevant parameters are stated below

15、.10Exploration Costs:$60 million in year oneCapital expenditures:$50 million in year two$60 million in year three$50 million in year fourInitial production:15 million bbls in first yearStarting in year four.Production decline rate:10% per yearYears of production:15 yearsOperating costs:$18 million i

16、n year oneOperating costs decline rate:6% per yearOil price:$18.5 per barrel assumed constantMROR15%Estimated the feasibility of the project.1112SolutionThe calculations are shown in the following table.Sample CalculationsThe calculations are carried out with a constraint that the profit oil can nev

17、er be less than zero.For year four, needs to be deducted since it is an actual expense of the project.13Exploration costs can be deducted in the first year of production as long as the profit oil is not equal to zero. Since the profit oil is positive, the exploration costs can be deducted in the fir

18、st year; otherwise, exploration costs can only be deducted to the extent that profit oil is zero. The unrecovered exploration costs will be carried forward in the subsequent years, and will be deducted.14The depreciation is calculated by using the double declining balance method. Since the total cap

19、italized expenditure is $160 million,Since only 40% of the profit oil is received by the contractor.Net income represents revenue minus actual outlays. These outlays include 60% of the profit oil which is given to the host country.15Similar calculations are repeated for other years as well. The NPV

20、of contractor is,The host country receives the income in two ways; through taxes and the share of the profit oil. The NPV of the host country can be calculated as $673.05 million. The host countrys share is,16Figure 4.14 shows a plot of the NPV of the contractor versus the NPV of the project. Althou

21、gh the relationship is not as smooth as in the case of royalty contract, the contract is clearly seen to be inefficient. Especially, if exploration costs are very high, and it takes along time to recover those costs, the time value of money makes the project uneconomical for the contractor. For many

22、 marginal projects, the contractor will lose money although the project is profitable. 17Figure 4.14: Efficiency of production sharing agreement18Figure 4.15 shows a plot of the host countrys share as a function of project profitability. As in Figure 4.14, the plot shows significant scatter(分散). Onl

23、y data shown in this figure is where the host countrys share is less than or equal to 100%. There is some trend in the data set which indicates regressive nature of the contract. Although, overall, the production sharing contract is only weakly regressive. 19AFigure 4.15: regressive nature ofproduct

24、ion sharing agreement20Production Sharing Contract in IndonesiaAs a specific example of a production sharing contract, we will discuss a typical production sharing contract signed between Pertamina (Indonesian national oil company) and the international oil company. Many of the features are identica

25、l(同样的) to the generic production sharing contract discussed before. However, some specific features are added to the contract.21The process begins by submission of a sealed bid on a concession. Depending on the terms of the bid, Pertamina selects a successful contractor.Pertamina has an option to jo

26、intly participate in the operation of the project. However, such option is rarely exercised. Instead, it pays its portion of the costs from its share of production without a direct involvement in the operation. During the exploration phase, Pertamina is not liable for failure. If the exploration pha

27、se results in a successful discovery, Pertaminas share of exploration costs will be paid from the future production benefits.22If the exploration results in a successful development of a field, gross revenue (production unit price) is divided into gross profit and First Transfer of Petroleum (FTP).

28、a form of royalty which ensures that state gains an immediate(直接的) benefit from any development. levied at 15 to 20% of the gross revenue, 20% being the most common. divided between the contractor and Pertamina in the same proportion as Pertaminas share of profit oil.23Once the been deducted, oil co

29、mpanies can recover costs from available revenue. In effect, a ceiling of 80 to 85% of the gross revenue is maintained for the cost recovery purposes. The cost recovery can be calculated as,24The operating costs are the daily maintenance costs. These costs include the cost of labor, utilities, chemi

30、cals and any other costs required to maintain the operation in the most efficient condition. Expensed investments include the intangible drilling costs, like labor, drilling mud and additives, site preparation, etc., as well as the geological and geophysical costs. These costs can be deducted in the

31、 same year if the field is producing. Otherwise, these costs are deducted in the year production begins.25Depreciation is calculated on all capitalized tangible equipment. These include casing, tubing, production batteries, pumps, separators, etc. A declining balance method (with 100% rate) is used

32、to calculate the allowed depreciation. Most drilling and production related equipment has a life of five years. Declining balance method is used over the first four years with the remaining book value being depreciated in the last year. Depreciation begins in the year of first production. For natura

33、l gas reservoirs, the tangible assets may be depreciated over half a useful life of the asset irrespective of the size of the reservoir.26The development and drilling costs (expensed investments) are intangible costs and are deducted in the first year of production, with a constraint that profit oil

34、 (discussed below) cannot become negative. If it becomes negative, these costs are carried over to the next year or years.Investment credit(信用) can be earned on qualifying pre-production costs. It can be charged in the year when the production begins only if profit oil (discussed below) does not bec

35、ome negative. Otherwise it can be carried over to the next year. 27The qualifying pre-production costs include investments directly required for production of oil and gas, including pipeline and terminal facilities. The costs incurred in acceleration projects do not qualify for investment credit, bu

36、t the costs incurred in increasing the oil recovery (such as secondary or tertiary processes) do qualify. Typically, the investment credit is calculated as 17% of the qualifying costs. The investment credit may be subject to income tax. If subject to income tax, for a 48% tax rate, the effective inv

37、estment credit may be 8.2%.28Once the cost recovery is estimated, profit oil is calculated by, (4.41) As discussed before, 15 to 20% of the gross revenue. Profit oil can never be less than zero. If the cost recovery exceeds (gross revenue- FTP), only partial recovery is allowed. The unrecovered amou

38、nt is carried forward in the subsequent year.29Once the profit oil is calculated, contractors and Pertaminas share of the profit oil can be calculated. The contractors share for crude oil can vary between 10 to 35% depending on the age of the reservoir, as well as production rates. The most common v

39、alue of contractors share is 28.8462% which is equivalent to 15% share after income tax at a rate of 48%. For natural gas, the contractors share can vary between 30 to 40%.30In addition to Pertaminas share, bonus paid to Penamina can also be deducted from profit oil to calculate taxable income. Bonu

40、ses are payable at the time of signing the contract and as various levels of production are reached. These bonuses can be deductible against income tax.taxable income = contractor FTP + contractors share of profit oil bonus + investment tax credit (4.42)Investment tax credit is added to taxable inco

41、me if it is subjected to(隶属于) income tax.31After five years of production, the contractor is obliged to sell oil to the domestic market at a reduced price(折扣价格). In 1992, the selling price to the Indonesian market was set at 15% of the international market price for conventional(常规的) production shar

42、ing contracts. This obligation to the domestic market is called Domestic Market Obligation (DMO). DMO is subject to a maximum of 25% of the contractors share of production. Therefore, taxable income after five years can be calculated as, (4.43)32where, (4.44)Eq.(4.44) assumes that the contractor is

43、selling the oil at an international market price. Since the contractor is receiving only 15% of the price for the DMO, 85% of the share associated with DMO is a loss to the contractor. This is deducted for the taxable income purposes. The income tax can be calculated as. (4.45)48% is the tax rate fo

44、r PSC (Production Sharing Contract) contracts. 33Knowing that depreciation, expensed investment and investment tax credit are the amounts deducted from gross revenue only for tax purposes, we can calculate the net revenue as,Using the net revenue, we can carry out economic analysis. 34The schematic

45、of the calculation procedure is shown in Figure 4.16. The government gets its share through FTP, profit oil, domestic market obligation and income taxes. The contractor gets its share through profit oil. The host countrys share is 71l.9 out of 800 of revenue after subtracting the costs. This is equi

46、valent to 89%. Conversely, the contractor gets 11% of the share.35MinusPlusGross Revenue1,000)200 71.1538%=142.31Contractor 28.8462%=57.69Cost Recovery200Profit Oil600Profit Oil Contractor 28.8462%=173.08Profit Oil Pertamina 71.1538%=426.92DMO61.30DMO61.30DMO 25% of Contractors Share 85%=0.85*0.25*0

47、.288463*1000=61.30Tax81.35Taxable Income169.47Tax 48%=81.35Host Countrys Share711.87Contractors Share88.13PlusPlusPlusMinusMinusEqual ToEqual ToEqual To36Example 4.21 Pertamina has signed a contract with an oil company (contractor) to explore for and produce from a newly established concession. The

48、following data with respect to costs, field conditions, and contractual terms are provided.3738Depreciation starts only after production has begun. The remaining balance is depreciated in year five. The expensed investments are deducted as part of the cost recovery so long at the profit oil in a giv

49、en year is not less than zero. Investigate the economic feasibility of the project.3940SolutionThe detailed solution is provided in the following table. The sample calculations follow.Sample calculationsFor year four,Gross revenue = 15106$18.5 - $50106 = $227.50 million$50 is the tangible costs expe

50、nditure in year four. = 15106$11538 = $39.49 millionThis represents 20% of the revenue multiplied by Pertaminas profit oil share which is 71.1538%. = 15106$88462 = $16.01 millioninvestment credit = 0.17tangible costs = 0.17$160 = $27.2 millionDepreciation = 1/4(tangible costs) =

51、1/4160 =$40 millionNote that depreciation is calculated over a four year period using 100% declining balance.41Expensed investment = exploration costs = $80 millioncost recovery = operating costs + depreciation - expensed investments + investment tax credit = 18.0 + 40.0 + 80.0 +27.2 = $165.20 milli

52、onprofit oil = revenue FTP cost recovery = 1510619 39.49 16.01 165.20 = $56.80 millionprofit oil Pertamina = 56.80.711538 = $40.42 millionprofit oil contractor = 56.80.288462 = $16.38 milliontaxable income = + profit oil contractor - signing bonus + investment tax credit = 16.01 + 16.38 5.0 + 27.2 =

53、$54.59 millionNote that the bonus can be subtracted for tax purposes; however, the investment tax credit may be subjected to tax.42net revenue=gross revenue operating cost profit oil Pertamina tax =227.5 - 18.0 - 39.49 - 40.42 26.21 =$103.39 million43For year nine,The only difference between year fo

54、ur and year nine is the addition of DMO as contractors obligation. Also, no bonus or investment tax credits are involved for calculation purposes.440.85 results from the fact that the contractor only gets 15% of the international oil price resulting in a 85% of loss. 45Using the net revenue values i

55、n the last column, the NPV of the contractors revenue is calculated. It is equal to $15.53 million making the project feasible. The host country gets its share through FTP, profit oil, taxes and DMO. The NPV of all these contributions is $267.53 million. Using these two numbers, we can calculate the

56、 Indonesian governments share as,46Figure 4.17: Efficiency of production sharing contract between Pertamina and oil company 47Figure 4.17 shows the plot of NPV of contractor versus NPV of the project. The contract is inefficient because, for large number of values, the overall project if profitable;

57、 however, the NPV of the contractor is still negative. 48Figure 4.18: Regressive nature of the production sharing contract between Pertamina and oil company49 Figure 4.18 shows the plot of the host countrys share as a function of overall profitability of the project. The only values considered were

58、when the host countrys share reached a maximum of 100%. The contract is regressive because the host countrys share decreases as the profitability of the project increases. The regressive nature is due to effectively acts as a royalty and is based on the gross revenue, and the DMO which is also levie

59、d based on the gross revenue. The percentage share of Indonesian government always exceeds 87% irrespective of the size of the project. As discussed before, the nature of the contract makes it difficult to develop marginal fields where the overall profitability of the project is low. 504.3.6 Service

60、 ContractsAs we move from concession agreement to service contract, the involvement of the host country increases. In essence, under a service contract, the international oil company provides the host country with services and information to help the country develop its own resources. In return, the