技术经济学英文版演示文稿C.ppt

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 contract between the host country and an international oil company.The basic difference between the production sharing contract and the concession agreement is the extent of control exercised(行行使使) by the host country in day to day operations. By being a partner in the operation of a field, the host country can monitor(监监控控) as well as participate in the decision making process. As 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(动动机机) including the signing bonus and work program, to receive a contract. If successful, the host country will sign a production sharing contract with the international oil company.Some of the key features of production sharing contract are:* The international oil company, solely at risk, has the exclusive right(专专 营营 权权 ) to 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 contract area.* Any production belongs to the host country.* After recovering the cost from the production proceeds, the balance(余余额额) 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 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(日日益益增增多多地地) in accordance with(依依照照) the agreed upon schedule.The main advantage of production sharing contract is that the host country can develop its 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 directly with personnel from the international oil company and gaining valuable experience.The schematic(示示意意) 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 exploration 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 contractor's share of profit oil is subject to income taxes.Gross Revenue1000Operating, Capitalized and Exploration Costs(Cost Recovery )400Profit Oil600Contractor’s Share300Host Country’s Share@ 50%=300Income Tax@ 50%=150Net Cash Flow@ 50%=150Host Country’s ShareFigure 4.13: Cash flow profilefor production sharing contractLessEqual ToEqual ToLessEqual ToSome variations of this standard production sharing contract include assessment of royalty based on the gross revenue before cost recovery; or, contractor’s share of profit oil is not subject to income tax. All these variations will change some calculations. Overall, though, the host country’s share in production sharing contract is rarely less than 50%.The following examples illustrate the application of production sharing contract on the economic evaluation of a project.Example 4.20 A production sharing contract is signed between the host country and an international oil company. The contract calls for a profit 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.Exploration 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 in year oneOperating costs decline rate:6% per yearOil price:$18.5 per barrel assumed constantMROR15%Estimated the feasibility of the project.YearProductionMMbblsGrossrevenueMillion $Operating costsMillion $DepreciationMillion $Explorationmillion $Profit OilTaxablIncomeMillion $TaxMillion $NetIncomeMillion $1　-60.00　　　　　　-60.002　-50.00　　　　　　-50.003　-60.00　　　　　　-60.00415.00227.5018.0045.7160.00153.79 61.5130.7686.47513.50249.7516.9232.65　200.18 80.0740.0472.69612.15224.7815.9023.32　185.55 74.2237.1160.43710.94202.3014.9516.66　170.69 68.2734.1450.8089.84182.0714.0511.90　156.11 62.4531.2243.1298.86163.8613.218.50　142.15 56.8628.4336.93107.97147.4712.4221.25　113.81 45.5222.7644.01117.17132.7311.67　　121.05 48.4224.2124.21126.46119.4510.97　　108.48 43.3921.7021.70135.81107.5110.31　　97.20 38.8819.4419.44145.2396.769.70　　87.06 34.8317.4117.41154.7187.089.11　　77.97 31.1915.5915.59164.2478.378.57　　69.81 27.9213.9613.96173.8170.548.05　　62.48 24.9912.5012.50183.4363.487.57　　55.91 22.3711.1811.18SolutionThe calculations are shown in the following table.Sample CalculationsThe calculations are carried out with a constraint that the profit oil can never be less than zero.For year four, needs to be deducted since it is an actual expense of the project.Exploration 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 first 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.The depreciation is calculated by using the double declining balance method. Since the total capitalized 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.Similar calculations are repeated for other years as well. The NPV 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 country's share is,Figure 4.14 shows a plot of the NPV of the contractor versus the NPV of the project. Although 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 marginal projects, the contractor will lose money although the project is profitable. Figure 4.14: Efficiency of production sharing agreementFigure 4.15 shows a plot of the host country’s share as a function of project profitability. As in Figure 4.14, the plot shows significant scatter(分分散散). Only data shown in this figure is where the host country’s 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. AFigure 4.15: regressive nature ofproduction sharing agreementProduction 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 identical(同同样样的的) to the generic production sharing contract discussed before. However, some specific features are added to the contract.The 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 jointly 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 phase results in a successful discovery, Pertamina’s share of exploration costs will be paid from the future production benefits.If 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). FTP is a form of royalty which ensures that state gains an immediate(直直接接的的) benefit from any development. FTP is levied at 15 to 20% of the gross revenue, 20% being the most common. FTP is divided between the contractor and Pertamina in the same proportion as Pertamina’s share of profit oil.Once the FTP has been deducted, oil companies 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,The operating costs are the daily maintenance costs. These costs include the cost of labor, utilities, chemicals 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 same year if the field is producing. Otherwise, these costs are deducted in the year production begins.Depreciation 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 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 natural gas reservoirs, the tangible assets may be depreciated over half a useful life of the asset irrespective of the size of the reservoir.The development and drilling costs (expensed investments) are intangible costs and are deducted in the first year of production, with a constraint that profit oil (discussed below) cannot become negative. If it becomes negative, these costs are carried over to the next year or years.Investment credit(信信用用) 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 become negative. Otherwise it can be carried over to the next year. The 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, but 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 investment credit may be 8.2%.Once the cost recovery is estimated, profit oil is calculated by, (4.41) As discussed before, FTP is 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 amount is carried forward in the subsequent year.Once the profit oil is calculated, contractor’s and Pertamina’s share of the profit oil can be calculated. The contractor’s 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 value of contractor’s share is 28.8462% which is equivalent to 15% share after income tax at a rate of 48%. For natural gas, the contractor's share can vary between 30 to 40%.In addition to Pertamina’s share, bonus paid to Penamina can also be deducted from profit oil to calculate taxable income. Bonuses 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 + contractor’s share of profit oil – bonus + investment tax credit (4.42)Investment tax credit is added to taxable income if it is subjected to(隶属于隶属于) income tax.After five years of production, the contractor is obliged to sell oil to the domestic market at a reduced price(折折扣扣价价格格). In 1992, the selling price to the Indonesian market was set at 15% of the international market price for conventional(常常规规的的) production sharing contracts. This obligation to the domestic market is called Domestic Market Obligation (DMO). DMO is subject to a maximum of 25% of the contractor’s share of production. Therefore, taxable income after five years can be calculated as, (4.43)where, (4.44)Eq.(4.44) assumes that the contractor is 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 for PSC (Production Sharing Contract) contracts. Knowing 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. The schematic 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 FTP and profit oil. The host country's share is 71l.9 out of 800 of revenue after subtracting the costs. This is equivalent to 89%. Conversely, the contractor gets 11% of the share.MinusPlusGross Revenue1,000FTP(20%)200FTP Pertamina@ 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 Contractor’s Share@ 85%=0.85*0.25*0.288463*1000=61.30Tax81.35Taxable Income169.47Tax @ 48%=81.35Host Country’s Share711.87Contractor’s Share88.13PlusPlusPlusMinusMinusEqual ToEqual ToEqual ToExample 4.21 Pertamina has signed a contract with an oil company (contractor) to explore for and produce from a newly established concession. The following data with respect to costs, field conditions, and contractual terms are provided.Expected Field ConditionsSigning bonus:$5 million in year zeroExploration Costs:$80 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 fourProduction decline rate:10% per yearYears of production:15 yearsOperating costs:$18 million in year oneOperating costs decline rate:6% per yearOil price:$18.5 per barrel assumed constantMROR15%Contractual TermsFirs transfer of petroleum:20%Investment tax credit:17% on tangible propertyPertamina’s share:71.1538%Domestic obligation:25% of contractor’s share @ 15% market priceTax rate:48%Depreciation:Single decline balance over four yearsDepreciation 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 given year is not less than zero. Investigate the economic feasibility of the project.YearProductionGrossRevenueMillion $FTPPertaminaFTPContractorOperatingCostsDepreciationInvestmentCreditExpensedInvestmentCostRecoveryProfit OilpertaminaProfit OilContractorDMOTaxableIncomeTaxNetRevenue0-5.00-5.001-80.00-80.002-50.00-50.003-60.00-60.00415.00227.5039.4916.0118.0040.0027.2080.00165.2040.4216.3854.5926.21103.39513.50249.7535.5414.4116.9230.0046.92108.7844.1058.5128.0860.42612.15224.7831.9912.9715.9022.5038.40100.6240.7953.7625.8150.46710.94202.3028.7911.6714.9416.8831.8392.5137.5049.1723.6042.4589.84182.0725.9110.5014.0550.6364.6857.6223.3633.8616.2568.2398.86163.8623.329.4513.2113.2183.8834.0010.0433.4116.0417.37107.97147.4720.998.5112.4212.4275.1130.459.0429.9214.3615.56117.17132.7318.897.6611.6711.6767.2527.268.1426.7812.8613.39SolutionThe detailed solution is provided in the following table. The sample calculations follow.Sample calculationsFor year four,Gross revenue = 15×106×$18.5 - $50×106 = $227.50 million$50 is the tangible costs expenditure in year four.FTP Pertamina = 15×106×$18.5×0.2×0.711538 = $39.49 millionThis represents 20% of the revenue multiplied by Pertamina’s profit oil share which is 71.1538%.FTP contractor = 15×106×$18.5×0.2×0.288462 = $16.01 millioninvestment credit = 0.17×tangible costs = 0.17×$160 = $27.2 millionDepreciation = 1/4×(tangible costs) = 1/4×160 =$40 millionNote that depreciation is calculated over a four year period using 100% declining balance.Expensed investment = exploration costs = $80 millioncost recovery = operating costs + depreciation - expensed investments + investment tax credit = 18.0 + 40.0 + 80.0 +27.2 = $165.20 millionprofit oil = revenue – FTP – cost recovery = 15×106×19 – 39.49 – 16.01 – 165.20 = $56.80 millionprofit oil Pertamina = 56.8×0.711538 = $40.42 millionprofit oil contractor = 56.8×0.288462 = $16.38 milliontaxable income = FTP contractor + profit oil contractor - signing bonus + investment tax credit = 16.01 + 16.38 – 5.0 + 27.2 =$54.59 millionNote that the bonus can be subtracted for tax purposes; however, the investment tax credit may be subjected to tax.net revenue=gross revenue – operating cost – FTP Pertamina – profit oil Pertamina – tax =227.5 - 18.0 - 39.49 - 40.42 – 26.21 =$103.39 millionFor year nine,The only difference between year four and year nine is the addition of DMO as contractor's obligation. Also, no bonus or investment tax credits are involved for calculation purposes.0.85 results from the fact that the contractor only gets 15% of the international oil price resulting in a 85% of "loss." Using the net revenue values in the last column, the NPV of the contractor’s 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 Indonesian government's share as,Figure 4.17: Efficiency of production sharing contract between Pertamina and oil company Figure 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; however, the NPV of the contractor is still negative. Figure 4.18: Regressive nature of the production sharing contract between Pertamina and oil company Figure 4.18 shows the plot of the host country's share as a function of overall profitability of the project. The only values considered were when the host country's share reached a maximum of 100%. The contract is regressive because the host country’s share decreases as the profitability of the project increases. The regressive nature is due to FTP which effectively acts as a royalty and is based on the gross revenue, and the DMO which is also levied 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. 4.3.6 Service 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 company receives a fee or share of production at a reduced price. Most significant, the oil company bas no equity position in the production. The company may receive production at discount prices, production bonus tied to reaching certain level of production, and the host country may also pay the company's taxes so that the proceeds are tax free. On the other hand, the host country retains the control and the ownership of the minerals.AThe service types of contracts can be further divided into three types of agreements: (i) pure service contract, (ii) the technical assistance agreement, and (iii) the risk service contract.Pure Service ContractIn pure service contract, the host country or its national oil company will contract with an international oil company to perform a specified service for a fixed fee. These service contracts do not provide for any right to production. To make the contracts more attractive, the host country may include a buy back arrangement where the international oil company can obtain crude oil instead of fixed fee. This allows the oil company (the contractor) to receive a fixed share of production (similar to overriding royalty) as a fee.These types of contracts are common in the Middle East. In Saudi Arabia, for example, international companies receive a fixed fee per barrel of production. In Qatar, an oil company is paid back with a fixed percentage of crude produced while providing the service.Technical Assistance (技术援助技术援助) AgreementIn technical assistance agreement, the contractor provides technical assistance related to exploration, development, production and refining of oil. The contractor's services may include providing equipment as well as training employees to operate the facilities. In return, the company agrees to pay for the expenses plus a fee tied to the production.Venezuela entered into such agreements with several international oil companies, where the oil companies agreed to operate the facilities they had built in return for a fixed per barrel fee.Risk Service ContractIn the risk service contract, the risk of exploration is borne by the contractor (the international oil company). The contractor agrees to explore a specific area and evaluate its potential. If a commercial discovery is made, the contractor is obligated to develop the reservoir. Once the field is developed, depending on the terms of the contract, the field is operated by either the contractor or the national oil company. The contractor’s investment is paid back with interest and fee. In addition, the contractor may receive a portion of the production at a reduced price. The countries which employ this type of contract are Argentina and Brazil.Unlike the other two contracts, concession and production sharing contracts, we have not included any examples to illustrate the applications of the service contracts. The main reason is the limited use of service contracts compared to the other two types of contracts. Further, due to wide variations in the terms of service contracts, it is very difficult to consider a typical service contract. Additionally, the service contract can be analyzed as a reverse of concession agreement with some modification, where the contractor becomes a royalty owner and the host country becomes the operator.4.4 SummaryIn this chapter, we considered the effect of income taxes on the economic analysis of a project. The effect can be significant depending on the tax structure. Although various nuances of the tax structures are not considered, the basic principles of the tax structure were illustrated through several examples.In this chapter, we also concentrated on the tax implications on the development of oil and gas properties domestically and internationally. As the landscape of oil production changes, and oil fields in the United States become mature(成成 熟熟 ), the international production becomes more relevant to the major oil companies as well as large independents. The international agreements can vary significantly in terms of the control of the operation, and the type of compensation the oil companies receive. However, there is one significant feature which is common to most of them; the fractional share of the production received by the host country. Unlike typical royalty contracts signed in the United States, the majority of production goes back to the host country. As was seen from many examples in this chapter, this type of arrangement significantly affects the cash flow analysis of the project, and may make the marginal or small oil fields difficult to develop. Understanding the implications of the type of the contract a company signs, is therefore, very crucial(至至关关紧紧要要的的) in making the project economically profitable.A。