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Contract Renegotiations and Other Recent Changes in the Oil and Gas Industries

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Competition: most hydrocarbon reserves are hold by NOC and more players compete ... Reduce government take; but intends to promote investment, exploration, production ... – PowerPoint PPT presentation

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Title: Contract Renegotiations and Other Recent Changes in the Oil and Gas Industries


1
Contract Renegotiations and Other Recent Changes
in the Oil and Gas Industries
  • Juan Carlos Quiroz
  • Matt Genasci
  • Revenue Watch Institute

2
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
    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.

3
(No Transcript)
4
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.

5
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
  • Fearing eviction
  • Suffering a rent increase
  • Finding a good deal
  • A good location often cost a premium
  • Paying a condos utility bill

6
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 controls  Argentina, Ecuador, Indonesia, Russia Increase government take but often associated to fuel subsidies
7
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

8
Merci beaucoup!
  • Contact information
  • Juan Carlos Quiroz
  • Policy Analyst
  • Revenue Watch Institute
  • jquiroz_at_revenuewatch.org
  • Matt Genasci
  • Legal Analyst
  • Revenue Watch Institute
  • mgenasci_at_revenuewatch.org
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