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Energy Economics GroupFederal University of Rio de Janeiro
PRODUCTION SHARING VERSUSCONCESSION CONTRACTS IN
BRAZILIAN UPSTREAM: AN ECONOMIC
COMPARISON
Edmar de Almeida IE/UFRJ
Thales Viegas IE/UFRJ
Felipe Dias IBP
Francisco Ebeling IBP
34rd IAEE International Seminar
Stockholm, June 2011
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Energy Economics GroupFederal University of Rio de Janeiro
PLAN OF THE PRESENTATION
Introduction
Fiscal Regimes and Contracts in Oil E&P
Evolution of Brazilian Oil industrySimulation Models For the Different Types of
Contracts
Results
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Energy Economics GroupFederal University of Rio de Janeiro
INTRODUCTION
1997 - Liberalization of the Brazilian Oil and GasIndustry.
2007- Discovery of the Subsalt oil and gas reservesGeological paradigm shift
New role for the oil and gas industry in Brazilian economy
2010 New Oil and Gas Law Introduction of new Production Sharing Contracts - PSC,
with new government take levels
Petrobras will be the sole operator for the PSC contracts
Concession contracts for the blocks already conceded
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Energy Economics GroupFederal University of Rio de Janeiro
PAPER OBJECTIVE
To compare the PSC Contracts with the existingConcession Contracts
To verify if there is room for increasing significantlythe government take
To verity if the object of gaining control over theprocess of investment and production is compatiblewith the objective of increasing the governmenttake.
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Energy Economics GroupFederal University of Rio de Janeiro
PLAN OF THE PRESENTATION
Introduction
Fiscal Regimes and Contracts in Oil
E&PEvolution of Brazilian Oil industry
Simulation Models For the Different Types of
ContractsResults
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E&P FISCAL REGIMES
ConcessionSystem
ContractualSystem
Servicecontracts
Productionsharing
with risk Without risk
Fiscal Regimes
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PLAN OF THE PRESENTATION
Introduction
Fiscal Regimes and Contracts in Oil E&P
Evolution of Brazilian Oil industrySimulation Models For the Different Types of
Contracts
Results
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9/29Energy Economics GroupFederal University of Rio de Janeiro
SEQUENCE OF BIDDING ROUNDS
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GEOGRAPHICAL DISTRIBUTION OFEXPLORATION BLOCKS FOR EACH ROUND
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SUBSALT BLOCKS/FIELDS IN THE SANTOSBASIN
Source: Petrobras
Volumes identified in the SantosBasin:
from 25 to 45 billion boe
From 900 to 1,600 bcm (or 32to 56 tcf)
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SUBSALT BLOCKS/FIELDS IN THE SANTOSBASIN UNDER CONCESSION CONTRACTS
Source: Petrobras
S S OC S S S OS
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SUBSALT BLOCKS/FIELDS IN THE SANTOSBASIN UNDER ONEROUS CESSION
CONTRACTS
Source: Petrobras
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EXPECTED EVOLUTION FOR THE OILPRODUCTION IN BRAZIL
Source: Brazilian Petroleum Institute
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THE NEW REGULATORYFRAMEWORK
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Energy Economics GroupFederal University of Rio de Janeiro
PLAN OF THE PRESENTATION
Introduction
Fiscal Regimes and Contracts in Oil E&P
Evolution of Brazilian Oil industry
Simulation Models For theDifferent Types of Contracts
Results
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Energy Economics GroupFederal University of Rio de Janeiro
CONCESSION CONTRACTS INBRAZIL
Mandatory choice between the return of the area or the
commitment of well drilling Submission of the Development Plan for ANP approval
Royalties: up to 10%
Special Participation Tax for Large fields: up to 40% of gross profits
Mandatory R & D investments only for fields that pay SpecialParticipation (1 % of gross field revenue)
Auctions to concede exploratory blocks: companiesselected by Bonus value
Investment program
Local Content rate
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Energy Economics GroupFederal University of Rio de Janeiro
PSC CONTRACTS IN BRAZIL
The terms are not totally determined
Submission of the Development Plan for ANPapproval
Royalties: 15%
New State Owned company to represent theState: PPSA
Petrobras
Auctions to select Petrobras partners byexploratory blocks.Bidding factor: Government Share on profit oil
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Energy Economics GroupFederal University of Rio de Janeiro
GR = Gross Revenue
NR = Net RevenueRoyalties
Explor. Develop.
Opex Gross Profit
S.P.
COSTS:
Explor = Exploration
Develop. = Development
Opex = Operating
Net Profit
IT
GOVERNMENT TAKE
ROYATIES: 10%
S.P. = Special Participation: up 40%
IT = Income Tax: 34%
MODELLING THE CONCESSION CONTRACT
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Energy Economics GroupFederal University of Rio de Janeiro
GR = Gross Revenue
NR = Net Revenue
Cost Oil Recovery Limit
Royalties
Explor. Desenv
.
Opex
Profit OilCost Oil
Company Gov
COST RECOVERY
Explor = Exploration
Dev = Development
Opex = Operating
Cost Recovery Limit = rate tobe determined
Profit IT =34%
GOVERNMENT TAKE
IR = Income Tax
GOV = Government ShareROYATIES
MODELLING THE PSC CONTRACT
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Energy Economics GroupFederal University of Rio de Janeiro
COMPARING CONCESSION AND PSCCONTRACTS
Project:Reserves : 790 million barrelsOil price: 75 dollars
CAPEX: 13,5 dollars/barrel
OPEX : 8,5 dollars/barrel
Discount Rate: 10%
Period for Exploration : 5 years
Period for development 3 years
IRR Level for Concession contract and
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IRR Level for Concession contract andPSC contracts with different Sharing
Scenarios
Source: Own Elaboration
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Energy Economics GroupFederal University of Rio de Janeiro
MONTE CARLO ANALISIS
Risk Variables for ConcessionOil price : 50-100 dollars
Capex : 11-15 dollars/barrel
Opex : 6.6 9.3 dollars/barrel
Geological risk : 30-50%
Risk Variables PSCOil price : 50-100 dollars
Capex : 11-20 dollars/barrel
Opex : 6.6 12 dollars/barrel
Geological risk : 30-50%Revenue Limit for cost recovery: 30-100%
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MONTE CARLO RISK ANALISIS PSCCONTRACT
Expected Monetary Value Simulations
32%
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MONTE CARLO RISK ANALISIS FOR PSCCONTRACT ZERO GEOLOGICAL RISK SCENARIO
15%
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Energy Economics GroupFederal University of Rio de Janeiro
CONCLUSIONS
Increasing government control over the oil projects
through PSC contracts is not compatible withincreasing Government Take
Economic risk for the investment under PSCcontracts are significant higher.
In order to compensate for these higher risk, PSCcontracts should be used only for blocks with verylow geological risk areas.
Government should directly invest in exploration inthe Subsalt Area in order to identify low geologicalrisk areas
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Energy Economics GroupFederal Uni ersit of Rio de Janeiro
THANK YOU