Fiscal systems for hydrocarbons 27 table 7 break even

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Fiscal Systems for Hydrocarbons 27 Table 7. Break-Even Price Fiscal Model 1 Fiscal Model 2 Fiscal Model 3 Fiscal Model 4 Field A 18.64 18.64 17.48 17.07 Field B 15.05 15.05 14.13 13.79 Field C 10.56 11.32 10.00 9.62 Field D 29.41 35.23 20.30 19.44 In Appendix, Graphs 5 to 8 show the sensitivity of government take and project prof- itability to changes in prices for the fiscal systems modeled in this paper. In general terms, pro- duction based sliding scales are more regressive (less neutral to investment decisions) than are R-factor and RoR-based sliding scales, as the split remains the same even if important changes in project economics should occur. On the other hand, these systems are easier to administer and may prove reasonably efficient in sharing the rent between the contractor and the gov- ernment when project uncertainty is low, especially if used in conjunction with price indices. The impact on project economics of the government’s participation through the NOC deserves special consideration. If concessional conditions apply to the government back- in interest (if the government does not pay its way in, or pays it only partially) this would have implications for the contractor’s NPV. 63 Furthermore, because the contractor is allowed to recover expenses (its share and the carried) with a limited or unlimited carry forward, 64 this may result in an implied borrowing rate for the host government that is higher than 63. Normally the State/NOC is carried through the exploration phase (rarely through development). Exploration costs may or may not be reimbursed to the contractor. In some cases interest may apply to unrecovered costs. The State/NOC share of participation is normally paid out of production. 64. Usually unrecovered expenses are carried forward to the next fiscal year until they are fully recov- ered (unlimited carry forward) or until they are allowed for recovery (limited carry forward). The carry forward affects both the calculation of profit oil split and of the corporate tax, although the mechanism may be different.
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its marginal borrowing rate. In addition, unrecovered expenses affect the calculation of R-Factor and RoR, which in turn may affect the level of government revenue when profit oil split/taxes are determined on these bases. In these cases, the NOC carried participation may mitigate the effect on a contractor’s NPV of a cost overrun (or improve the benefit to the con- tractors in case of cost savings). This effect and its magnitude would, inter alia, depend on the relationship between project IRR and discount rate, and it would not occur when the project IRR is lower than the discount rate. Therefore, when a carried interest is involved, the deci- sion to exercise the back-in option, and the consequent use of public resources, needs to be evaluated in light of the overall macro-economic objectives and resource allocation priorities of the government. In Appendix G, Table 26 shows the effect of a 30 percent 65 participation of the NOC carried through exploration.
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  • Winter '14
  • Bijay K Behra
  • host government, fiscal systems, world bank working

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