High risks and long project cycles are key elements

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High risks and long project cycles are key elements of the oil and gas industry. As risks can differ substantially by project and over time, an efficient fiscal system needs to be flexi- ble enough to allocate risks equitably, thus minimizing the need for and cost of negotiations or renegotiations. Such a system would be, at least in theory, more stable and better suited to mitigating the investment risk. If correctly designed, the fiscal system has the potential to reduce the procyclicity of investment: a less variable flow of investment is more likely to support the creation of spare capacity, thus reducing price volatility. In today’s competitive market, many diverging interests must be recognized and accom- modated to establish an effective and attractive legal and fiscal framework for hydrocarbon exploration and production. No ideal or model regime is available for policy makers to adopt. Each country’s circumstances, needs, and objectives define the key features of an appro- priate legal and fiscal framework. This paper provides an overview of the key features of petroleum fiscal systems around the world and attempts to outline desirable features for designing a fiscal regime for the management of a country’s petroleum endowment. Chapters 2 and 3 provide background material on, respectively, the stages of an oil and gas project and the type of legal arrangements normally used in the petroleum sector. The relative advantages and disadvantages of the tax and non-tax instruments used in petroleum fiscal regimes are discussed in Chapter 4. Chapter 5 outlines the features of successful fiscal regimes, while system measures and economic indicators are described in Chapter 6. Finally, in Chapter 7, a sensitivity analysis is used to illustrate some typical fiscal systems’ design issues. 2 World Bank Working Paper 1. The World Offshore Oil and Gas Products and Spend Forecast 2007-11, published by Douglas- Westwood, predicts this trend to continue over the next five years, with particular emphasis on deep water floating and subsea production solutions. Operating costs are also expected to increase by more than 50 percent by 2011 as a result of increasing output and producing a higher share of more expensive oil. The impact will differ among regions. 2. Including some R-Factor and RoR-based systems. For a definition of R-Factor and RoR see Chapter 4.
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CHAPTER 2 The Life Cycle of a Petroleum Project T he stages of a typical oil and gas project can be described as follows: 1. Licensing: In most cases the host government grants a license (lease, or block area) or enters into a contractual arrangement with an oil company or group of oil com- panies to explore for and develop a field without transferring the ownership of the mineral resources.
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  • Winter '14
  • Bijay K Behra
  • host government, fiscal systems, world bank working

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