4 Brazil Oil Contracts Final

8/6/2019 4 Brazil Oil Contracts Final

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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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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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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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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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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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8/29Energy Economics GroupFederal University of Rio de Janeiro


Introduction


Evolution of Brazilian Oil industrySimulation Models For the Different Types of

Contracts

Results



SEQUENCE OF BIDDING ROUNDS



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)



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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Introduction


Evolution of Brazilian Oil industry

Simulation Models For theDifferent Types of Contracts

Results


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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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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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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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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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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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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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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

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4 Brazil Oil Contracts Final