flow generated by the oil sector as a whole on the

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flow generated by the oil sector as a whole on the key macro-economic indicators (mainly inflation, GDP growth, balance of payments). 25 Economic and fiscal systems measures are project-specific quantities that vary with numerous system parameters unique to the project (including, but not limited to, the size 17 25. In practice, governments in resource rich developing countries often suffer from capacity con- straints that limit their ability to set up and implement rigorous monitoring systems.
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and quality of discoveries, 26 the development and operational plan of the operator, the cost structure; the financing costs, discounts or premia for the particular crude oil stream 27 ), as well as non-project specific variables (such as crude oil prices, inflation, currency exchange rates, local and global economic conditions, and regulatory changes). Hydrocarbon price, development cost, technological improvements, demand-supply relations, country risk, and the corporate strategy, all impact investment planning. Hence the accurate com- putation of the economic and fiscal system measures associated with a field largely depends on the reliability of the assumptions. 28 In effect, only at the end of a field’s eco- nomic life, when all revenue, cost, royalty and tax data are known, can the profitability and the division of profits between the host government and the investors be reliably determined. In practice, due to their commercial sensitivity, cash flow and cost data are very rarely made public. Various economic indicators are used to assess the performance of a project. The most common are the net present value of the project’s cash flow (NPV), 29 the internal rate of return (IRR), 30 and the profitability ratio (PR). 31 The NPV provides an evaluation of the project’s net worth to the investor in absolute terms, while the IRR and the PR are relative measures used to rank projects for capital budgeting. Economic values are not intended to be inter- preted on a standalone basis, but should be used in conjunction with other system mea- sures and decision parameters. A combination of indicators is usually necessary to adequately evaluate a contract’s economic performance. 32 18 World Bank Working Paper 26. A detailed and realistic field description is the first and most important estimate that must be made: the size, shape, productive zones, fault blocks, drive mechanisms, etc. of the reservoir must be estimated with as much accuracy as possible since they determine the capacity of the structure and the number and location of wells. Various techniques (such as geologic conditions at reservoir level and decline curve analysis) are available to estimate production rates. However, forecast production is only used as a guide- line since investment activity can dramatically alter the form of the production curve as well as recover- able reserves.
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  • Winter '14
  • Bijay K Behra
  • host government, fiscal systems, world bank working

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