Overview of PSCs Baker McKenzie IBP.Final.pdf

87 profitability measures linked to r factor the r

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87 Profitability Measures – Linked to R Factor The R factor (R standing for "ratio") is described in many different ways in PSCs – investment multiples, the revenue/cost ratio etc – but essentially it means the ratio of cumulative expenditure to cumulative income. Cumulative expenditure includes exploration, capital and operating costs. When R = 1 it means the contractor has received as much in income as it has spent, so it has achieved (in crude terms) payout R factor changes as costs are reimbursed, so factor increases with each payout R factors easier to establish and audit than profitability factor
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88 Analysis of Production Sharing Percentages Indonesia Clause 6.3.1 : First Tranche Petroleum: 20% Clause 6.1.2 : Operating Cost Recovery Clause 6.1.3 : Remaining Oil: Pertamina: 72.2143% Contractor: 26.7857% (85/15 split after taxes)
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89 Analysis of Production Sharing Percentages Nigeria Clause 10 (p. 75) : Available crude oil shall be allocated as follows: 1. Royalty Oil 2. Cost Oil (up to 80% of balance) 3. Tax Oil 4. Profit Oil (subject to R factor) Annex B: Accounting Procedure (p. 109) : Annex C: Allocation Procedure
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90 Analysis of Production Sharing Percentages China Clause 13 (p. 29-31) : allocation of Annual Production: 1. Value Added Tax (5%) 2. Royalty 3. Cost Recovery (75%) 4. Allocable Remainder and Liquid [Hydrocarbon] in proportion to participating interests (IOC 70%; Government 30%)
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91 Analysis of Production Sharing Percentages Equatorial Guinea Clause 7 (p. 25) : Royalties, Cost Recovery Oil (% of production after deducting Royalties), Net Crude Oil (balance of oil to be shared) Example 1993 Model: no royalty; cost recovery ceiling = 50%; capex uplift = 40%; contractor profit oil share = 10- 75% -- ≥60% if IRR <30%; tax = 50%
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92 Other Profit Sharing Methods Libya in its EPSA IV terms introduced in 2004, provided for the contractor's share of profits to be on a sliding scale is based on a formula calculated on two bases — production increments and the R factor Trinidad and Tobago's PSC provides for the sliding scale profit sharing to be calculated on two bases – incremental cumulative production levels and the oil price Cote d'Ivoire provides for profit sharing to be calculated on a combination of daily production levels and water depth and it also provides for R factor terms as an alternative
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93 Royalty in Production Sharing Systems It must be remembered that in a Production Sharing System, the Contractor only recovers from its share of Gross Production after the Royalty share is allocated to the Government. The introduction of a royalty generally affects two calculations - the Cost Recovery Ceiling and Profit Oil. The royalty amount is subtracted from the gross revenues before the ceiling rate is applied. For example, with a 10% royalty and a 60% ceiling rate, the Cost Recovery Ceiling would be: (Gross Revenues - Royalty) * Ceiling Rate.
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  • Winter '14
  • Bijay K Behra
  • contractor, Petroleum industry

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