Peep Training

Day 1
Welcome
Instructor: Olivier Mussat

Objectives
Day 1

International Fiscal Regimes Overview

Overview of Peep

Day 2

Navigation around Peep & setting preferences

Creating a case & entering data
Reporting on the outcome
Auditing FML cash flow using reports

Day 3

Client-Specific / Consulting Models

Viewing and changing fiscal terms
Partial Reporting / Point Forward Economics
Sensitivity Analysis
Batches / Consolidations

Introduction

Instructor Background
7 years Energy Industry experience
Operations (downstream & power generation) /

Economics / Asset Portfolio Management

2 years in Merak Consulting Business
Participant Background
Name
Backgrounds
Peep Experience if any?
Personal Goals For Class

Peep

Is an application for:
International

Economic Evaluation
Decline Analysis and
Fiscal Modeling

Enter Engineering Data

Enter Engineering Data
Enter Engineering Data

Calculate Economic
Case

Aids in the analysis and

calculation of the value of
oil and gas properties

Report on the Outcome

Peep and FML

Peep

FML

Peep is a database framework

software and calculation
engine.

FML models provide fiscal

calculations and reporting
modules for Peep cases.
FML Models work with Peep as
its calculation engine.

Linking Peep case to FML

model and populating the
case with fiscal terms

The PEEP System

Models
(Opex, Capex definitions,
Tax, royalties,
cost recovery)

Global Parm
Document

Well
(Prod. History, prod. Forecasts
Test data, decline curves)

Reports

(Esc, disc, common pricing)

Price Document
(Base Markers, Offsets,
Reference prices)

Currency
(Conversions, Inflation)

(Reports and graphs)

Case
(Project entries, time line,
Interests)

Classification of Fiscal Regimes

Petroleum Fiscal Regimes
Concessionary Systems

Contractual Systems

(Mineral title is transferred)

(Government retains mineral title)

Royalty / Tax Systems

PSC (Production Sharing Contracts)

Service Agreement

(Governments compensated from

Contractors payments)

(Government compensates Contractor

in kind / value of product)

(Government compensates
Contractor in service fees)

Production Based

Profit Based
R Factor

ROR

Pure Service
(State bears risk)

Risk Service
(Contractor bears risk)

Hybrids

Fiscal Regime Classification - Examples

Royalty/Tax
UK
Brazil
Norway
PSC (Prod Based)
Nigeria
China
Trinidad
Service
Venezuela
Iran
Chile

Royalty/Tax (R Factor) Royalty/Tax (ROR)

Peru
Australia PRRT
Colombia
Ghana
Senegal
Nova Scotia
PSC (R Factor)
Libya
Malaysia
India

PSC (ROR)
Angola
Azerbaijan
Tanzania

where :
R Factor = Cum Revenue / Cum Costs
(R Factor = 1 = Payout)

Royalty / Tax Regimes

Petroleum Fiscal Regimes
Concessionary Systems

Contractual Systems

(Mineral title is transferred)

(Government retains mineral title)

Royalty / Tax Systems

PSC (Production Sharing Contracts)

Service Agreement

(Governments compensated from

Contractors payments)

(Government compensates Contractor

in kind / value of product)

(Government compensates
Contractor in service fees)

Production Based

Profit Based
R Factor

ROR

Pure Service
(State bears risk)

Risk Service
(Contractor bears risk)

Hybrids

Royalty / Tax Regimes

Fiscal Regime Analysis - Royalty Tax

Production Sharing Contract Regime

Petroleum Fiscal Regimes
Concessionary Systems

Contractual Systems

(Mineral title is transferred)

(Government retains mineral title)

Royalty / Tax Systems

PSC (Production Sharing Contracts)

Service Agreement

(Governments compensated from

Contractors payments)

(Government compensates Contractor

in kind / value of product)

(Government compensates
Contractor in service fees)

Production Based

Profit Based
R Factor

ROR

Pure Service
(State bears risk)

Risk Service
(Contractor bears risk)

Hybrids

Production Sharing Contract

Proj Sales Revenue
- Royalty (some countries)
- Cost Recovery
Contractors
Revenue
- Profit Split
Host Countrys
Revenue

- Operating Costs
- Capitals
- Other Income

= BTCF
- Income Tax

= ATCF

Production Sharing Contract Regime

Fiscal Regime Analysis- Basic PSC

Faeroe Islands R/T (2000) Cash Flow

Revenue
-

Royalty
Operating Costs
Capitals
Other Income

= BTCF
- Income Tax
- Special Hydrocarbon Tax

= ATCF

Service Contract Regime

Petroleum Fiscal Regimes
Concessionary Systems

Contractual Systems

(Mineral title is transferred)

(Government retains mineral title)

Royalty / Tax Systems

PSC (Production Sharing Contracts)

Service Agreement

(Governments compensated from

Contractors payments)

(Government compensates Contractor

in kind / value of product)

(Government compensates
Contractor in service fees)

Production Based

Profit Based
R Factor

ROR

Pure Service
(State bears risk)

Risk Service
(Contractor bears risk)

Hybrids

Service Contract Regime

Gross Revenue
Less

Royalties
Less

Capital and Operating Costs

Plus

Service Fee $/boe

Less

Income Tax
Equals

Net Cash Flow to Company

Fiscal Regime Analysis - Service Fees

PSCs Characteristics of Cost Recovery

Revenue available for cost recovery:

% of net revenue (after royalty) available from 40% (Egypt, Myanmar
onshore) to 100% (many PSCs).

Order of recovery usually (but can vary):

Operating costs - Exploration Development - Other.

Interest payable on unrecovered balance in some contracts.

Allocation method by working interest, revenue interest, or less
frequently, FIFO (e.g. Gabon).

PSCs Production-Based Profit Sharing

Brunei PSC (2001) Production Rate-based Tranches
For a field < 200mmb,
If Production Rate
Contractor Share of Profit Oil
<25,000 b/d
60%
25 50,000 b/d 40%
>50,000 b/d
20%

Pakistan PSA (2001) Cumulative Production-based Tranches

For water depths < 200m,
If Cumulative Production
Contr Share of Profit Oil
<200 mmboe
80%
200 400 mmboe
75%
400 800 mmboe
60%
800 1200 mmboe
40%
1200 2400 mmboe
30%
>2400 mmboe
20%

PSCs R-Factor Profit Sharing

Malaysia PSC (1998) - R-Factor based Tranches
For a field < 30mmb,
if R
Contractor Share of Profit Oil
<1
80%
1.0-1.4
70%
Where R =
1.4-2.0
60%
( Contractors Cumulative Cost Recovery
2.0-2.5
50%
+ Unused Cost Recovery Revenue
2.5-3.0
40%
+ Profit Oil
>3.0
30%
Export Duty
Windfall Petroleum Tax
Research CESS )
Cumulative Costs

PSCs ROR Profit Sharing

Azerbaijan PSC (1994) Real Rate of Return based Tranches
if RROR
<16.75%
16.75% - 22.75%
>22.75%

Contractor Share of Profit Oil

70%
45%
20%

Where RROR is calculated using an economic model. In early

production years RROR is likely <16.75%. At some point in production
RROR will exceed 16.75% and the next periods Profit Oil will be subject
to the 45:55 split. The profit split remains in the second tier until RROR
reaches 22.75%; the following periods Profit Oil split be 20:80.

Entitlement Barrels (Net Reserves)

SEC Guidelines allow for the booking of Economic Net Volumes,
before taxes. This is a Royalty Tax based assumption and other
contracts are (with some difficulty) forced into this same concept of
reporting.

Royalty Tax Regimes

Gross Volume less royalties
Production Sharing Agreements
Cost Oil + Profit Oil = Entitlement bbls
If Tax is paid by NOC out of their Profit Share, then Tax
Volume may exist

Service Agreements
No ownership of volumes. Typically companies book the
Net Before Tax Revenue in equivalent Barrels.

Income Tax
In a concessionary system, taxable income is applied to the profit
after royalty, DD&A and any other taxes.
Rates vary from 25 % (e.g. Bolivia) to 55% (e.g. Brunei).
Depreciation methods are diverse but often straight line over 5-15 years.
Some regimes offer

Investment tax credits (e.g. Venezuela).

Offsetting of taxes against one another (e.g Faroe Islands, Brasil).
Uplifts to capital before depreciation (e.g. Denmark).

In a PSC, taxable income is usually applied to the profit share

amount.
Rates tend to be negatively correlated with profit splits i.e. the more profit oil the

contractor gets, the higher the income tax is likely to be.

Rates vary from 0% effective (IT paid by Government) to 57.5% (Cameroon).
Depreciation methods are diverse but often straight line over 5-15 years.

Tax Barrels
Tax Barrels occur when the Contractor Group has its taxes
paid for it by the NOC.

This means some of the NOC profit share is actually Tax

Payments. The effect is that the Net Reserves before tax are
greater then the Net Entitlement Barrels (which include the
tax paid by NOC). These payments should not be taken as a
reduction in Net barrels by SEC requirements.

To account for this, assumptions must be made about the tax

position that would exist for the Contractor Group.

FML models have the ability to calculate and report tax

barrels separately