The Comparison of the Severity and the Efficiency of Fiscal Terms in the Asia Pacific Region

Abstract

Abstract The Asia Pacific Region is one of the most prominent regions of the world for oil and gas exploration and development. It contains a range of opportunities - from mature, producing areas to frontier exploration areas. Since the recent increases in oil prices, the international oil and gas industry has paid increased attention to the region. For most of the countries in the Asia-Pacific, the fiscal terms have a considerable influence on the economics of exploration and production and a review of the terms is a crucial part of exploration or field development investment decisions. This paper reviews the key fiscal terms for oil exploration development in a cross section of countries in the Asia Pacific Region - Australia, Indonesia, Bangladesh, Vietnam, China, Philippines, Thailand, and India. The terms reviewed are believed to be typical of current agreements for oil exploration and development. Based on detailed economic modelling of the effect of the fiscal terms on hypothetical oil and gas field developments, we present a comparison of the severity of the terms on a consistent basis. In addition, we show how flexible the terms are at responding to different exploration, development and economic conditions. The paper quantifies and compares the impact of the fiscal terms on the profitability of the field development by analysing Government Take for a range of hypothetical field developments. It includes a comparison of the efficiency/flexibility of regimes in the region by quantifying the effect of Government Take on marginal field developments. Based on this analysis, the paper has key messages for those designing or negotiating petroleum fiscal terms. The paper aims to assisting decision makers to assess the relative merits of different regimes in the Asia Pacific Region and how the terms affect their investment decisions. It also aims to help host Governments assess the competitiveness of their fiscal terms compared to those of their neighbours in the region. Introduction This paper reviews the key fiscal terms for oil in a cross section of countries in the Asia Pacific Region - Australia, Indonesia, Vietnam, Bangladesh, Philippines, Thailand, and India. The terms reviewed are believed to be typical of current agreements for oil exploration and development. As a simplification, the effects of State Participation are not included in the analyses. We analyse and compare the severity and the efficiency of the terms. The latter shows how flexible the terms are at responding to different exploration, development and economic conditions. Given that Government-controlled gas prices in some countries would affect the economics of the exploration and development, fiscal terms for gas discoveries are not easily compared and so are not considered.