Jameleddine Kasbi. Fatma Medhioub

Transcription

1 Jameleddine Kasbi Business Development Portfolio Expert Fatma Medhioub Junior Commercial Expert Tunisia Oil & Gas Summit

2 Content Introduction Environment for the E&P Business in Tunisia Joint Venture Agreement Production Sharing Agreement Comparison JVA/PSA 2

3 Introduction Purpose: Overview of the Tunisian Production Sharing Agreement (PSA) and the main incentives for the exploration and production of hydrocarbons in Tunisia for this type of agreement. References: Hydrocarbons Code 1999 as amended in 2002, 2004 and ETAP Production Sharing Model 3

4 Content Introduction Environment for the E&P Business in Tunisia Joint Venture Agreement Production Sharing Agreement Comparison JVA/PSA 4

5 Objectives of the major players State Valorize its natural resources by promoting activity Maximize income while allowing investors to draw to return Ensure supervision and control by establishing laws and regulations Acquire expertise collaborating with investors and promoting technology transfer Contracts International Oil Company (IOC) Get access to reserves and production Realize and Remunerate risky investments Participate in the decision process at all stages of the projects Valorize its research programs and know-how by developing new projects 5

6 Environment for the E&P Business in Tunisia A liberal economic system Transparency and anti-corruption laws Efficient Ministries applying Regulations A continuous improvement of legal & fiscal terms and licensing procedures A diversified geology covering a wide range of petroleum plays A substantial oil & gas infrastructure covering the whole country An aggressive marketing to promote acreages 6

7 Procedures to apply for a Block Opening offers for blocks (open blocks and offers opening dates in ETAP web site) No bidding round Free access to ETAP data room Company to choose the type of Agreement (JVA/PSA) Application shall be submitted to DGE Consultative energy committee CCH composed by decree (7 members) to decide to accept or reject the offer Technical and commercial evaluation of the offer 7

8 Selection criteria Technical capacity and financial resources Work program and expenditure Selection criteria Participation level of the national oil company (ETAP) if JV and Production Sharing Rates if PSA 8

9 Continuous Law and Regulation improvement: Decree December 29, 1913 for Ores Decree-Law 85-9 Law Hydrocarbons Code Decree December 13, 1948 for Hydrocarbons Decree January 1, 1953 for Ores Old Conventional Regimes: Convention includes all provisions governing the title holder activities (legal, fiscal, foreign exchange etc.) No clear provisions for abandon obligation Decree-Law 85-9 New tax provisions and tax incentives (exceptions to ring fencing) Introduced the R-factor & the PSA regimes New exchange regime Hydrocarbons Code New tax provisions and tax incentives Confirmed the R-factor: for income tax and royalty Confirmed the PSA and exchange regime Abandonment cost can be accrued and tax deducted New gas pricing Formula * Slide prepared by Sofiene Gaied 9

10 Contractual framework for E&P licenses Two Types of Agreements with State and ETAP : Joint Venture Agreement: ETAP and Partner as co-holders of the hydrocarbon titles Convention Joint Venture* (24 JVs in 2014) Production Sharing Agreement: ETAP as a holder of the hydrocarbon titles and Partner (s)as Contractor Convention Production Sharing* (21 PSAs in 2014) *Convention Models Published in the official gazette *PSA and JV Models Provided by ETAP 10

11 Content Introduction Environment for the E&P Business in Tunisia Joint Venture Agreement Production Sharing Agreement Comparison JVA/PSA 11

12 Joint Venture Agreement Exploration Permit : granted jointly to ETAP and its partner (s) as co-holder (s) Exploration Costs : at the risk and at the expenses of ETAP s partner Concession : ETAP has the option to participate in any commercial discovery upon its development decision up to the maximum percentage rate fixed in the relevant Agreement In case of its participation in a concession : ETAP pays its share of all development and operating costs (CAPEX and OPEX ) through cash calls ETAP reimburses its share of past exploration costs incurred on the permit pursuant to the terms negotiated and agreed under the Contract of Association (generally, through dedication of the value of an agreed percentage of its share of production from the concession). 12

13 Joint Venture Agreement Co-holder(s) to pay all exploration costs incurred on the permit Exploration Co-holder(s) to pay its share of Dev Costs+Opex Development/Opex ETAP to pay its share of Dev Costs+Opex Value of Production ($) Co-Holder(s) s share ETAP s share State : +Royalty of Co-Holders +Income Tax of other Coholders +DMO Co-holder(s) ETAP State : +Royalty of ETAP +Income Tax of ETAP +DMO -ETAP reimburses its share of past exploration costs incurred on the permit 13

14 Content Introduction Environment for the E&P Business in Tunisia Joint Venture Agreement Production Sharing Agreement Comparison JVA/PSA 14

15 Production Sharing Agreement: Origin Introduced in Indonesia in 1967,the objective is to better control Petroleum Operations: Cost oil : Max 40% of value of Production NOC share of Profit oil : 60% Contractor share of Profit oil : 40% NOC holder of Hydrocarbon Titles and Hydrocarbons to the export point IOC acts as a Contractor for the NOC Contractor finance all Petroleum Operations Hydrocarbons production shared in kind Contractor get a share of production to recover its costs (cost oil/gas) and remunerate its investments and risk through a share of profit oil/profit gas 15

16 Tunisian Production Sharing Agreement ETAP is the sole holder of the hydrocarbon licenses (exploration Permit, concessions) Company, acts as exclusive contractor ; in case of several companies, one of them will be appointed as operator Contractor carry at its own cost and risk all exploration, development and operating costs PSA signed between ETAP (Holder) and the Partner (contractor) the main terms are : Management of operations : management Committee /decision mechanisms/tasks Operating Ownership : ETAP owner of the assets when cost recovered but used freely by the Contractor in the Permit and any Concession derived Accounting procedures,reporting,audit Production Sharing mechanism : Cost Oil/Gas ; Profit oil /gas split 16

17 Tunisian Production Sharing Agreement Sharing of production : Cost oil and/or Cost gas : lifted by the contractor for the recovery of its costs ; rate defined under the PSA; Cost oil amount = Min{cost oil rate * revenue, unrecovered costs +actual costs}; Costs not recovered are carried forward; Profit oil and/or Profit gas: represents the residue of Oil or Gas produced during each year, after the Contactor lifts the quantities necessary for Cost Recovery; will be shared between ETAP and Contractor pursuant production splits defined under the PSA. 17

18 Tunisian PSA: Production Sharing Mechanism Profit Oil/Gas and Cost Oil/Gas rates not defined in Tunisian Hydrocarbon Code and generally defined based on : Average monthly daily production level R ratio which measures the Contractor s profitability (most common) Tranches of monthly average of daily production and oil price Cost Oil/Gas rates: Fixed rates of cost oil /cost gas (most common) Variable rates of cost oil/cost gas based on R ratio Note: To promote Gas targets, higher rates for Gas discoveries 18

19 Cost Recovery Priority Tunisian PSA: Recoverable Costs 1- Exploration and Appraisal Costs Recoverable from any Concession derived from the same permit. This choice will be notified by the Contractor to ETAP within 6 months, at the latest, after the approval of the POD (Ring fence) 2- Development Costs The expenditures deriving from the development operations related to a concession and not yet recovered at the time of stop of Production of such concession may be recovered from the production of all the other concessions deriving from the permit The interest loan charges relating to expenditures for development investment (Loan <=70% of the Development investment) will be recovered by the Contractor 3- Production Costs 4- Abandonment Costs 19

20 Tunisian PSA: Fiscal terms Contractor is exempted from Domestic Market Obligation for crude oil All royalties and income taxes and domestic market obligation to be paid only by ETAP from its share of Profit oil/gas Income tax of the Contractor is fixed in the Hydrocarbon Carbon as equal to the value of its share of profit oil/gas and paid by ETAP Provision for abandonment costs and investment in exploration and pipelines are considered as recoverable costs 20

21 Contractor s share Tunisian Production Sharing Agreement Cost oil/gas cost Recovery ( cost not recovered carried forward) Value of Production ($) Profit oil/gas State share: - Royalty - DMO (bbl/dt) - Income tax of contractor =value of its profit oil/gas - Income tax of ETAP Contractor s Profit oil/gas share (ETAP) profit oil/gas share ETAP NET Cash Flow 21

22 Example 1: Constant PSA rates Assumptions: Cost Oil rate defined in the PSA=40% Profit Oil ETAP= 80% Profit Oil Contractor= 20% Year N-1 N N+1 N+2 N+3 N+4 Revenue Unrecovered Costs OPEX +Investment Cost Oil = Min (40%*revenue, OPEX + Investment + Unrecovered Costs) Profit Oil=Revenue-Cost Oil Profit Oil Contractor Profit Oil ETAP

23 Example2: Profit Oil/Gas based on R Ratio It is the most common Profit oil/ Profit Gas sharing system in Tunisia is: R ratio = Cumulative value of net revenue of Contractor Cumulative Petroleum Operation Costs R ratio is determined yearly for each Concession (ring fence) The basic principle of R ratio is to allow the PSA contractor to have a higher share of profit oil when the contractor s profitability is low and to increase ETAP s share of profit oil when contractor s profitability improves It is a progressive system that provides government an adequate share of the rent under varying conditions of profitability (Price, cost,production.) 23

24 Example2: Profit Oil/Gas based on R Ratio Cost Recovery: Cost oil: 40% Cost gas: 45% Profit Oil shared based on R ratio = Net revenues of Contractor Net Costs The basic principle of R ratio based PSA is to allow the PSA contractors a higher share of production when the contractor s profitability is low and to increase ETAP s share of production when contractor s profitability improves. The contractor s profitability is measured by the R ratio. 24

25 Content Introduction Environment for the E&P Business in Tunisia Joint Venture Agreement Production Sharing Agreement Comparison JVA/PSA 25

26 Rent Sharing Mechanism/project full cycle evaluation Rent of a Project= Price *( Production ) - Capex - Opex In case of a JV the Rent share of the Government is equal to : ETAP Net cash Flow + Royalties + Income taxes + Domestic market reduction(~2% of royalties) In case of a PSA : The Rent share of the Government is equal to the Profit oil share of ETAP 26

27 Comparison JVA/PSA J.V P.S.A Contractual framework Title holder(s) -Convention with the State -Contract with ETAP of Association ETAP and partner(s) as Coholders - Convention with the State -Production Sharing Agreement with ETAP -ETAP is sole holder of all hydrocarbon titles Exploration financing -The Company (in case of commercial discovery ETAP reimburses its share, as per the JV agreement ) -The Contractor 27

28 Comparison JVA/PSA J.V P.S.A Depreciation rates 30% per annum Cost Oil/Gas rates Interest charges Tax deductible for a loan up to 70% of Development Investment cost recoverable for a loan up to 70% of Development Investment Uplift on certain exploration costs 10 to 30% for depreciation purposes 10 to 30% for cost recovery purposes Provision for abandonment costs and investment in exploration and pipelines Tax deductible Cost recoverable 28

29 Comparison JVA/PSA J.V P.S.A Development/ operations -ETAP pays cash its share of development and production cost -Contractor finances all development and production costs Decision Mechanism unanimous decisions development and production phases unanimous decisions development and production phases

30 Conclusion PSA advantages as a mechanism for Energy Policy : More Flexible than the JV : -The sharing rates not fixed in Hydrocarbon Code - Adopts Terms to promote risky blocks, difficult access area, shale/oil gas development, Frontier areas, deep water) and Capital intensive projects - relieves ETAP from the risk of development and production - relieves ETAP from debt burden Can be designed so that the state share of Rent is equivalent to a JV with ETAP participation rate of 50% PSA advantages for the Contractor: More efficient operation management No contact with tax Authorities More risk BUT higher return 30