A review of upstream fiscal terms in North Africa Algeria, Egypt, Morocco and Tunisia

Transcription

1 A review of upstream fiscal terms in North Africa Algeria, Egypt, Morocco and Tunisia Akil Zaimi December 4, 2015

2 Introduction to the King Abdullah Petroleum Studies and Research Center A new international research center located in Riyadh, Saudi Arabia. A legally, financially, administratively independent, non-profit research institution that answers only to an international Board of Trustees. Research teams focused on economics, policy, technology, and the environment across all types of energy worldwide. KAPSARC s mandate is to advance the understanding of energy challenges and opportunities facing the world today and tomorrow, through unbiased, independent, high-caliber research for the benefit of society.

3 1) Considerations about the upstream industry 2) North Africa contracts 3) Economics Carbon capture for EOR in North Africa

4 1) Considerations about the upstream industry 2) North Africa contracts 3) Economics Carbon capture for EOR in North Africa

5 Upstream Investors screening criteria Technical Quality of the asset : subsurface : reserves, surface : technical costs infrastructure : pipelines & export terminals Legal Clear legal framework - Stability of terms Reasonable work commitments Ease of asset transactions Long duration of licenses, 30 years and more Relevant local content regulations Quality of relations with host country : Ministry of Petroleum, NOC Economics Low State take through NOC participation and taxes, no double taxation Gas pricing and access to market No or low asset transaction taxes No exposure to local currency fluctuations 5

6 CLASSIFICATION OF UPSTREAM CONTRACTS Service : Large producers Concession : royalty, tax on profit : Algeria, Morocco, Tunisia Pure Production Sharing : cost oil profit oil : Egypt, Tunisia Combination production sharing and Concession : Uganda Production sharing Concession Cash Flow = Costoil+ profit oilcompany Costs as : Costoil+ profit oilcompany+ profit oilstate = Revenues = Revenues profit oilstate Costs = Revenues rate x (production costoil) Costs = Revenues Costs Tax Corporatetaxformula 6

7 Contractual Framework Upstream Industry 1) Host country only Local NOC or 2) Host country Group of investors which can include the local NOC sign contracts a) Concession PSC Combined concession PSC b) Service Major event of the year Opening of Mexico 12 Tcf gas discovery in Mauritania 30 Tcf gas discovery in Egyp 2013 Higher State take of profit than the standard 30% Corporate tax rate through several similar mechanisms

8 Financial analogies betweenconcession and production sharing contacts Partial or complete combination of the same mechanism Taxrate x Taxbase, Taxbase = Revenues -Deductions MECHANISM FORMULA COMMENTS Severity NOC participation t.r- t C = t ( R - C) payment of C delayed for exploration, development payment delayed in some countries 6) Royalty t.(r- 0) no or very low deductions 2) Profit oil Sharing t. ( R - min ( cost oil rate x R, D)) deductions are limited to a % of revenues 5) Tax on profit t.( R - min ( 100% R, D) ) Field based, no negative tax: ring fencing 4) t.( R - D) can be "negative" tax if company in global profit 3) Other taxes on profit t.( R - D) D < R Tax on dividends 4) Bonus Fees Fixed amounts, generally moderate Bid, Signature, reaching certain targets, training 1) Except for royalty, high tax rate means high share of revenues for governments but alsohighshareof costs

9 1) Considerations about the upstream industry 2) North Africa upstream contracts : global context structure overall perception by the industry 3) CO2 capture for EOR 9

10 Compared historical geological success

11 Compared size per new field wildcats IPA Global

12 Compared structures of the contracts NOC participation and royalty MOROCCO ALGERIA TUNISIA EGYPT 2013 law / shale terms CONTRACT TYPE CONCESSION CONCESSION CONCESSION PSA GAS PRICE Case by case indexed to Brent indexed to fuel oil flat generally low NOC max 25% 51% up to 50% None past explo not reimbursed ROYALTY 5% gas 10% oil zones : 5%-12% to 12.5%-20% depending on production 2% to 15% / 10% no Etap local market None zone production and zone R factor / oi or gas 12

13 Compared structures of the contracts Taxes MOROCCO ALGERIA TUNISIA EGYPT 2013 law / shale terms CONTRACT TYPE CONCESSION CONCESSION CONCESSION PSA TAXES MAX DEDUCTIONS AS % of PRODUCTION share net of royalty Depreciation standard standard 100% 100% 100% 35% to 40% 30% Depreciation standard depletion allowance Uplift Loan Interest + Uplift possible 100% of Excess cost oil to Egypt in some cases Field Tax or State Profit oil 20% to 70% or 30% to 70% depending R factor 50% if Etap > 40% 80% depending on production rates Opex not deductible Corporate tax 30%, not tax during 10 first years according to zones 30% / 19% - 80% depending on R factor BONUS None None None Signature, production Other taxes 1% tax on transactions R factor Algeria 10% discounted gross profit / 10% discounted investment 20% discounted gross profit / 20% discounted investment gross profit = cash flow + investment 13

14 WORLD FISCAL SYSTEMS FOR OIL (PETROLEUM ECONOMIST MAP) Structure of the Chinese upstream contract : PSC with royalty and tax No map or comparison available for gas FISCAL TERMS vary from friendly Morocco to tough Algeria Libya Algeria introduced in 2013 fiscal terms for non conventional hydrocarbons increasing Government share 14

15 Oil cases considered same field same price gas cases are not considered but upstream gas prices are different Limits of fiscal comparisons Cumulative non discounted Company Cash Flow millions $ années Egypte oil Tunisie oil Egypte gas Tunisie gas Tunisiaand Egyptclose in oilcase Tunisiamuchbetterfor the investorin a gascase 15

16 Policy perception Fraser Institute 2014 Survey : questionnaire : score 16 criteria on 156 jurisdictions by 710 industry respondents FINANCIAL 16

17 Policy perception Fraser Institute 2014 Survey : questionnaire : score 16 criteria on 156 jurisdictions by 710 industry respondents Norway concession type, no toyalty, 78% tax rate fast deductions Fiscal Tax Infrastructure Labour reg skills trade barriers database environ protect areas land security legal admin regulatory legal duplication politic stab Average score 0% Mississippi Texas 10% Netherlands Norway 20% Oman Percentile rankin ng 30% 40% 50% 60% 70% 80% 90% Nova Scotia Brunei Colombia Thailand Malaysia Azerbaijan Chad Russia - Offshore Sakhalin Indonesia Nigeria 100% Iran Tunisia Morocco Algeria United Arab Emirates Egypt Turkey, Gabon, Albaniaare the closestto Tunisia 17

18 1) Considerations about the upstream industry 2) North Africa upstream contracts : 3) CO2 capture for EOR 18

19 CO2 for EOR MISCIBLE better than immiscible Capturing CO2 from industrial sources for EOR could have a double benefit: Oldand proventechnology: Most projects(100) in the US, essentially from natural sources of CO2 about 10 CO2 EOR projectsuse CO2 fromindustrialsource => CO2 capture for EOR 19

20 Weyburn field Canada CO2 capture for EOR 20

21 CO2 EOR profiles : Kinder Morgan Melzer model CO2 profile mmc/d mmbbl oil additional production Close to 100 M$ capex No drilling considered CO2 inj Purchased CO2

22 BEFORE TAX NPV Oil price 50 $/bbl - CO2 purchase 50 $/ton Undiscounted 10% discount rate Cumulative CF M$ 10% discount rate Capex +CO2 Purchase +CO2 processing Sales Not economic 5% IRR

23 BEFORE TAX NPV 10% discount rate purchase CO2 50 $/ton Oil price 50 $/bbl Cumulative CF M$ 10% discount rate Capex +CO2 Purchase +CO2 processing Sales Oil price 100 $/bbl Cumulative CF M$ 10% discount rate Capex +CO2 Purchase +CO2 processing Sales Can t afford waiting oil prices to recover Need to build a new business model Taxation can t do anything on a financially non profitable project Act on CO2 purchase price

24 BEFORE TAX NPV CO2 purchase 50 $/ton Oil price 50 $/bbl 10% discount rate CO2 purchase 0 $/ton Cumulative CF M$ 10% discount rate Cumulative CF M$ 10% discount rate Capex +CO2 Purchase +CO2 processing Sales Capex +CO2 Purchase +CO2 processing Sales Not economic 5% IRR 25% IRR

25 BEFORE TAX NPV Oil price 50 $/bbl From free CO2 To revenue based CO2 500 Cumulative CF M$ 10% discount rate 500 Cumulative CF M$ 10% discount rate Capex +CO2 Purchase +CO2 processing Sales Capex +CO2 Purchase +CO2 processing Sales What legal and fiscal framework?

26 Thank You