Timor Sea Petroleum Semina Dili Presentation 23 Mar 2002 by GAMcKee

Impact of an Exclusive Economic Zone delimitation on
East Timor’s petroleum revenue
EEZ
TIMOR SEA PETROLEUM SEMINAR

Sponsored by Petrotimor
Dili, East Timor, March 23, 2002
Presentation by Geoffrey McKee • G A McKee & Associates Pty Ltd • Oil & Gas Project Development Services • Sydney • Australia
Impact of an Exclusive Economic Zone (EEZ) delimitation on
East Timor’s Petroleum Revenue
• Brief history / background
• 5 July 2001 proposal versus EEZ delimitation

- Sunrise
- Laminaria / Corallina
- Bayu-Undan
• Potential benefit to East Timor of an EEZ delimitation

US$40 billion* * Additional revenue to East Timor, cumulative as-spent dollars of the day over life of all project
scenarios 2000 to 2050 (assumes base oil price escalation of 2.5% in line with forecasted US
inflation rate). The present (real, de-escalated) value of this future cash flow is approximately
US$21 billion.
Timor Sea Petroelum Seminar - Dili, East Timor, March 23, 2002 2
Zona nebe Timor Loro Sa’e ho Australia diskute hela
t*
m en
tle t*
E nti men
e
EE
Z
n titl
m E
i mu E EZ
Mi
n le A16
s sib Greater
Po
Sunrise
5 July 2001 Australia / East Timor
‘Joint Petroleum Development Area’
90% East Timor / 10% Australia
Evans Shoal
A17
Laminaria-Corallina
Bayu-Undan
Fronteira Tasiokos nebe

Indonesia ho Australia *Source of potential lateral median line EEZ boundaries:
akorda iha 1972 Linha klaran UK Hydrographic Office, Law of the Sea Division
Fronteira be dalan nian nebe akorda iha 1997
Sunrise gas resource
Condensate: 300 million barrels 2.0 billion barrels of oil equivalent
LNG: 177 million tonnes (BOE)
Indonesia 1972 seabed boundary

Australia
A15
A16 Possible
EEZ Entitlement
(100%)
Minimum
5 July 2001 EEZ Entitlement
JPDA Entitlement (~80%)
(90%)(20%) = 18%
Sunrise gas resource
Energy
Condensate: 300 million barrels
2.05 billion
LNG: 177 million tonnes
barrels of oil equivalent (BOE)
5-July-2001 proposal
Resources owned Possible resources lost
370 million BOE 1680 million BOE

Sunrise gas resource - Floating LNG prospect

LNG: 177 million tonnes
Production Gross sales revenue

US$80 billion*
200
Thousand 150
BOE per 100
day 50
0
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
3,000
2,000
Project cash flow US$ 1,000
millions
0
-1,000
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
* cumulative as-spent dollars of the day over the life of this project scenario.
Development Capital costs Operating cost (incl. LNG transport)
The present (real, de-escalated) value of this future revenue flow
Combined product sales revenue
is US42 billion.
Sunrise FLNG project scenario
Government revenue split between East Timor and Australia
based on 5 July 2001 Arrangement (unratified)
As spent dollars-of-the day
East Timor Australia

US$ 8 billion* US$ 28 billion*
US$millions
1,200 1,200
800 800
400 400
0 0
2010 2020 2030 2040 2050 2010 2020 2030 2040 2050
FTP Profit Oil Company tax Company tax Resource Rent Tax
Total government take = $36 billion

* The present (real, de-escalated) values of these future cash flows are US4.4 billion and US$15.6 billion respectively
Sunrise FLNG development scenario
Indicative government revenue
Cumulative dollars-of-the day over project life
East Timor East Timor

US$ 8 billion US$ 44 billion
50 Australia
40 US$ 28 billion
US$ billions
30 Australia
20 Nil
10
0
5 July 2001 proposal Potential EEZ
Potential additional revenue = $36 billion
Potential resources
Laminaria / Corralina oil field

198 million BOE
Minimum EEZ Entitlement
A17
A18
Ju
1972 Australia / Indonesia
ly
seabed boundary
20
01
JP
DA
Potential resources
Laminaria / Corralina oil field

198 million barrels
Production
160
barrels per day

Thousands of
140
120
100
80
60
40
20
0
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
1,100
Project cash flow millions 900

700
500
US$
300
100
-100
Gross sales revenue -300

-500
US$4.1 billion* 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Exploration & appraisal cost Drilling & facilities cost

Operating cost Gross product sales revenue
* The present (real, de-escalated) value of this sales revenue is US$4.0 billion.
Laminaria / Corralina development
Hypothetical East Timorese revenue
if resources were inside East Timor’s EEZ
As spent dollars-of-the day
East Timor PSC fiscal scheme at 100% jurisdiction
US$ 2.0 billion*
400
US$millions
350
300
250
200
150
100
50
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
East Timor FTP East Timor Profit Oil East Timor corporate tax
* Present Value is US$ 1.9 billion.
Bayu-Undan gas condensate field
LPG: 175 million barrels Energy
Condensate: 229 million barrels 1.05 billion
LNG: 66 million tonnes barrels of oil equivalent (BOE)
Mini
Current joint development proposal

mum
Ju
East Timor 90% / Australia 10%
ly
20
EEZ
01
JP
E
ntitl
DA
eme
nt
7 E E Z / M edian Line
/ 199
1981 FPSL
LPG: 175 million barrels Energy
Condensate: 229 million barrels 1.05 billion
LNG: 66 million tonnes barrels of oil equivalent (BOE)
5-July-2001 proposal
Resources owned Potential resources lost

90% 10%
105 million BOE

940 million BOE
LPG: 175 million barrels Gas (LNG): 66 million tonnes
Liquids project Production assumptions Offshore LNG prospect?

160 160
Thousands 120 120
of BOE per 80 80
day 40 40
0 0
2000 2005 2010 2015 2020 2025 2030 2000 2005 2010 2015 2020 2025 2030
Gross sales revenue Gross sales revenue

US$9.5 billion US$28 billion
1,500 1,500
US$ millions
1,000 1,000
500
500
0
0 -500
-500 -1,000
2000 2005 2010 2015 2020 2025 2030 2000 2005 2010 2015 2020 2025 2030
Capital cost Operating cost Gross product sales revenue Capital cost Operating cost Gross product sales revenue
Revenue to East Timor

Offshore LNG prospect?
Liquids project
US$4.1 billion US$12.4 billion
US$3.6 billion* With EEZ US$11.2 billion* With EEZ

700
700
600
600
US$millions
500
500
400
400
300
300
200 200
100 100
0 0
1998
2000
2002
2004
2006
2008
2014
2016
2018
2020
2022
2024
2026
2028
2030
2010
2012
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
90% share of FTP 90% share of Profit Oil East Timor corporate tax First Tranche Petroleum Profit Oil East Timor corporate tax
* The present (real, de-escalated) values of these future cash flows are US2.8 billion and US$7.7 billion respectively
Revenue to East Timor

Liquids project
US$4.1 billion
US$3.6 billion With EEZ

Impact of base crude oil price
8
7
6
US$ billions 5
4
3
2
US$22/barrel US$25/barrel US$30/barrel
Current arrangement Potential EEZ

Spot Crude oil prices 1973 - 2002
Arab oil embargo
Gulf war
Iranian revolution
US$ per barrel
40
20
0
1970 1975 1980 1985 1990 1995 2000 2005
Summary
East Timor’s indicative petroleum resources
Millions of barrels of oil equivalent 1,310
1,980
All 4 projects
2500
2000
1500
1000
500
0
Laminaria B-U liquids & Sunrise FLNG
Corallina offshore LNG
Potential additional entitlements through EEZ delimitation

Resource entitlements based on 5 July 2001 proposal
Summary
East Timor’s indicative petroleum revenue
US$ billions 19.1
As spent dollars of the day over life of projects
38.9
All 4 projects
50
40
30
20
10
0
Laminaria B-U liquids & Sunrise FLNG
Corallina offshore LNG
Potential additional revenue through EEZ delimitation

Revenue based 5 July 2001 proposal
APPENDIX
Petroleum revenue forecasting
INPUT DATA OUTPUT DATA
Production rates Gross sales revenue
Product prices Government revenue

Petroleum
FTP + Profit oil + CT
Project
Investment Evaluation
- exploration
Spreadsheet Companies’
- development
net cash flow
Operating costs
Project profitability
NPV and ROR
Fiscal terms
FTP, Profit Oil, and tax
At best revenue forecasts informed guesswork…
due to UNCERTAINTY and RISK
Probability Probability
Production Revenue minus Capital Expenditure
Probability Probability
0
minus Operating Expense equals Cash Flow
After: J Brashear, SPE Distinguished Lecturer series, Sydney, Feb 2002
Bayu-Undan liquids project
Sketch courtesy Phillips Petroleum
Impact of company tax rate
- cumulative dollars-of-the day over project life
5.0
4.0
East Timor's
3.0
Petroleum
Revenue 2.0
(US$ billions) 1.0
0.0
Current TSA Potential EEZ
44% company tax 30% company tax
East Current joint East Timor EEZ
Timor’s development jurisdiction
company arrangements
tax rate US$ millions
US$ millions
Base case, August 2001
Australian revenue 353 Nil
East Timorese revenue 44% 3,642 4,051
Total governments take 3,998 4,051**
Inpact of lower effective

company tax rate
Australian revenue 353 Nil
East Timorese revenue 30% 3,174 ( 468) 3,527 ( 524)
Total governments take 3,527 3,527
Basis: cumulative, undiscounted dollars-of-the-day over life of project. Fiscal scheme as for 5 July
2001 Timor Sea Arrangement (includes the 127% investment credit). Australian company tax rate
30%, East Timor’s tax rate as shown. Arrows show change in East Timor’s projected revenue
relative to base case. **refer Attachment 1 for project evaluation model details of this base case
BAYU-UNDAN LIQUIDS PROJECT
Impact of taxation on
East Timor’s share of petroleum revenue
Current (unratified) joint development arrangement
4.0
3.8
US$ 3.6
billions 3.4
3.2
3.0
44% East Timor company tax (as for Indonesia)

Proposed reemoval of investment credit
30% East Timor company tax (as for Australia)
Impact of taxation on rate on
Companies’ rate of return
Current (unratified) joint development arrangement
14%
12%
10%
8%
44% East Timor company tax (same as Indonesia)

Investment credit removal (July 2001, proposed)
30% East Timor company tax (same as Australia)
Return on capital for oil companies…..
U.S. Majors
20% Large U.S. Independents 40
Average spot crude oil price (US$ per barrel)

(E&P Net Earnings to E&P Net Assets)
15% 30
Cost of capital?
10% 20
5% 10
Return on Capital
0% 0
Source: U.S. Oil & Gas Company Performance Report,
3rd Addition, Pennwell, 1999, via J Brashear,
SPE Distinguished Lecturer series, Sydney, Feb 2002
-5%
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998
Impact of oil price on project rate of return
Current Timor Sea Arrangement with 30%company tax rate
20%
18%
ROR 16%
14%
12%
US$22/barrel US$25/barrel US$30/barrel
Sunrise Floating LNG prospect
Image courtesy Woodside Petroleum
Sunrise FLNG development scenario
Indicative government revenue
under differing EEZ boundary delimitation assumptions
50
US$ billions
40
30
20
10
0
20% 40% 60% 80% 100%
Unitised East Timorese share of field
Revenue received by Australia (Australian PRRT fiscal scheme)

Revenue received by East Timor (TSA fiscal scheme)
SUNRISE FLNG PROJECT
Companies’ rate of return @ 44% East Timor tax rate
De c
rea
sing
attr
16% acti
ven
ess t
o co
15% mp
anie
ROR s
14%
13%
20% 40% 60% 80% 100%
East Timor's share of field after EEZ delimitation
Companies’ rate of return @ 30% East Timor tax rate
Less s
16% e vere im
pact
15%
ROR
14%
13%
20% 40% 60% 80% 100%
Some government fiscal scheme controls….
COMPANIES’ EAST TIMOR’S

RATE OF RETURN REVENUE
50% 44%
127%
INVESTMENT FTP & PROFIT OIL COMPANY TAX

CREDIT SHARE RATE
Fiscal control measures to maintain
companies’ rate of return
50% 50.0%
44% 42.5%
40% 40.0% 38.5%
30% 30% 30% 30%
20%
10%
0%
20% 40% 60% 100%
East Timor's share of FTP & Profit Oil East Timor's tax rate
Use of fiscal controls
Companies not disadvantaged
16%
15%
ROR
14%
13%
20% 40% 60% 80% 100%
Laminaria / Corralina development
Zona nebe Timor Loro Sa’e ho Australia diskute hela
Baucau Lospalos
Manututo
Liquica DILI
Balibo Viqueque
Maliana n t*
Betano me
title
En
Suai
E EZ
i ble
ss A16
Po
um Greater
xim Sunrise
Ma
5 July 2001 Australia / East Timor

‘Joint Petroleum Development Area’ Evans Shoal
A17
Laminaria-Corallina
Bayu-Undan
Fronteira Tasiokos nebe

Indonesia ho Australia
akorda iha 1972 Linha klaran
Fronteira be dalan nian nebe akorda iha 1997
Summary
East Timor’s indicative petroleum revenue
US$ billions 12.1
Cumulative, de-escalated (real) 2002 dollars
20.6
All 4 projects
30
20
10
0
Laminaria B-U liquids Sunrise
Corallina & offshore FLNG
LNG
Potential additional revenue through EEZ delimitation
Revenue based on existing arrangement

Timor Sea Petroleum Semina Dili Presentation 23 Mar 2002 by GAMcKee

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Impact of an Exclusive Economic Zone delimitation on

East Timor’s petroleum revenue

TIMOR SEA PETROLEUM SEMINAR

Dili, East Timor, March 23, 2002

• Brief history / background

• 5 July 2001 proposal versus EEZ delimitation

• Potential benefit to East Timor of an EEZ delimitation

Fronteira Tasiokos nebe

Indonesia 1972 seabed boundary

Resources owned Possible resources lost

370 million BOE 1680 million BOE

Condensate: 300 million barrels

Production Gross sales revenue

BOE per 100

East Timor Australia

Total government take = $36 billion

East Timor East Timor

Potential additional revenue = $36 billion

Laminaria / Corralina oil field

Minimum EEZ Entitlement

Laminaria / Corralina oil field

barrels per day

Project cash flow millions 900

Gross sales revenue -300

Exploration & appraisal cost Drilling & facilities cost

US$ 2.0 billion*

* Present Value is US$ 1.9 billion.

Current joint development proposal

Resources owned Potential resources lost

105 million BOE

Liquids project Production assumptions Offshore LNG prospect?

Gross sales revenue Gross sales revenue

Revenue to East Timor

US$3.6 billion* With EEZ US$11.2 billion* With EEZ

Revenue to East Timor

US$3.6 billion With EEZ

Current arrangement Potential EEZ

Potential additional entitlements through EEZ delimitation

Potential additional revenue through EEZ delimitation

INPUT DATA OUTPUT DATA

Production rates Gross sales revenue

Product prices Government revenue

due to UNCERTAINTY and RISK

Production Revenue minus Capital Expenditure

After: J Brashear, SPE Distinguished Lecturer series, Sydney, Feb 2002

Sketch courtesy Phillips Petroleum

44% company tax 30% company tax

Inpact of lower effective

44% East Timor company tax (as for Indonesia)

44% East Timor company tax (same as Indonesia)

Average spot crude oil price (US$ per barrel)

Image courtesy Woodside Petroleum

Revenue received by Australia (Australian PRRT fiscal scheme)

COMPANIES’ EAST TIMOR’S

INVESTMENT FTP & PROFIT OIL COMPANY TAX

30% 30% 30% 30%

Companies not disadvantaged

5 July 2001 Australia / East Timor

Fronteira Tasiokos nebe

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