ABSTRACT
Petroleum Fiscal System (PFS) is a major determinant of investment
decision in the exploration and production of oil and gas in any
country. It basically describes the profitability relationship between
the host government of the producing community and the International Oil
Companies (IOCs). The comparative analysis of the performance of the
fiscal regimes becomes imperative as it affects the interest of the
investor and the production of oil and gas. During the formulation of
any fiscal regime a premium is placed on its outcome.
In this study, Petroleum Fiscal System (PFS) deepwater economic model
is developed for the Gulf of Guinea. The approach incorporates a
dynamic multipurpose input data page that automatically considers fiscal
laws, taxation and stochastic analysis. Monte Carlo simulation using
@risk software is used to account for risk and uncertainties in decision
making.
This study addresses the industry structure, conduct and performance
of fiscal regimes of countries in the Gulf of Guinea. Comparison of the
effects of production delay, front ended government take, front loading
index, and taxation show that the Gulf of Guinea is internationally
competitive in all ramifications. A wide range of profitability
indicators were used in the economic evaluation decision of this work
such as Government Take (GTake), Contractor Take (CTake), Net Present
Value (NPV), Internal Rate of Return (IRR), Profitability Index (PI),
Savings Index (SI), Return on Investment (ROI), Payout Time (POT),
Effective Royalty Rate (ERR), Growth Rate of Return (GRR), Discounted
Net Cash Flow (DNCF), Front Loading Index (FLI). This avails investors,
governments, petroleum economists, and so on great options of economic
performance indicators in decision making. It is also found that as the
risk in deepwater investment increases with water depth, return on
investment rises significantly too in the Gulf of Guinea.
Analysis of all terms contained in the deep water economic model formulated
(stochastic and deterministic) presents a useful tool to guide in investment decision making in
the Gulf of Guinea. Recommendations on how the variations would give government equal
take on any Petroleum Fiscal System are made. Usually the aim of the host government is to
get as much economic rent as possible.
CHAPTER ONE
1.0 INTRODUCTION
1.1. OVERVIEW
Deepwater offshore exploration as much as it is a breakthrough in
Petroleum Exploration and Production as it offers significant benefits
over onshore production, still poses challenges to the oil and gas
industry. The Gulf of Guinea (GOG) is an attractive place for investment
in the oil and gas sector, opportunities abounds for petroleum
exploration and production. Exploration and production in deepwater
offshore have been proven to produce more oil and gas, add to proven
reserves and generate more income for such producing nations. In the
long run, production in deep waters will help the growing economies
hence the demand for oil and gas globally.
The analysis of fiscal regimes which is one of the determinants of
investment decision in the exploration and production of oil and gas is
imperative for the Gulf of Guinea as it affects the interest of the
investor and the production of crude oil. Several authors such as Temmy
D. and Tumbur P. (2002), Costa Lima G.A. et al (2010) due to its
significance, analyzed profitability of Fiscal regimes in the Asia
Pacific countries and Brazil respectively, however, risk and
uncertainties were not accounted for.
The Gulf of Guinea is the arm of the Atlantic Ocean, western Africa,
between Cape Palmas, at the south-eastern tip of Liberia, and Cape
Lopez, Gabon. Among the many rivers that drain into the Gulf of Guinea
are the Niger and the Volta. The coastline on the gulf includes the
Bight of Benin and the Bight of Bonny. The Niger River in particular
deposited organic sediments out to sea over millions of years which
became crude oil. This region is now regarded as one of the world's top
oil and gas exploration hotspots and most promising petroleum provinces
(Microsoft Encarta, 2009). The countries of the Gulf of Guinea, an area
in the West and Central Africa coast are made up of Nigeria, Equatorial
Guinea, Gabon, Ghana, Liberia, Togo, Cameroon, Benin, Ivory Coast,
Angola, Congo, Guinea, and the islands of Sao Tome and Principe. Islands
in the GOG that are part of Equatorial Guinea are Annobon, Bioko,
Corisco, Elobey Grande and Elobey Chico (Wikipedia, 2011). Some
countries like Nigeria and Angola are already producing from offshore
areas in the GOG, while others are starting to conduct exploration
activities. By some estimates, West Africa already has up to 547 major
offshore oil and gas structures.
Currently, offshore production accounts for up to 30% of the world's
oil and gas production. That percentage is expected to rise in the
future. Estimates indicate that the GOG and African countries already
supplies about 11% of world’s oil and gas needs and holds about 10% of
the world’s proven reserves (PWC, 2010). However, this number is
expected to grow, given that exploration is only now commencing in some
offshore areas.
1.2. STATEMENT OF THE PROBLEM
Several studies have been done on the comparative competitiveness of
Petroleum Fiscal Systems (PFS) in the Gulf of Mexico (GOM), Brazil,
Australia, Malaysia, etc., but none has been done for the GOG. Though
Merak Projects PEEP has fiscal models for some GOG countries, they are
in isolation for commercial purposes. Therefore, in this study, an
integrated PFS of various fiscal regimes in the GOG will be modelled;
implemented and proposed PFS in countries in the GOG will be analyzed as
well as the uniqueness of each country. The same field data
(hypothetical or real) will be used to forecast production and costs.