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

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

• Juan Carlos Quiroz
• Matt Genasci
• Revenue Watch Institute

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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.

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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.

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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

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Overview of recent changes
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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

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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