Oil Sector Management

 presented by

Decio Hamilton BarbosaLuanda, Angola, May 2006

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Topics

• International practice with respect to the role of government ministries/agencies and NOC in overseeing oil sector operations

• Government/NOC fiduciary relationships

• Experience of Brazil

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World oil

• Government– Practically everywhere in the world, petroleum

resources are owned by the state• In the underground• Until produced• Until exported• Throughout the value chain

– US onshore, parts of Canada excepted– NOC sometimes acts in the role of owner for the state

• Private capital– Takes most of the risk, makes most of the investment,

conducts most of operations, pays the taxes / shares the production

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Host Government

• Owns– Practically everywhere (US onshore major exception)

• Legislates– Laws and agreements– Various government instruments

• Manages– Ministry, Agency, Regulator, NOC

• Invests– NOC

• Takes– Direct and indirect share of investments– Direct and indirect taxes and fiscal levies– Other requirements and obligations

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Role of the NOC

• Genesis– Participation– Nationalization

• Title holder of national (oil) resources– Oil, natural gas

• Contract administrator• Recipient (and seller) of state share of production• Importer

– Price stabilizer• Key component of national economy

– Employer / social security– Foreign currency player whether as both exporter or importer

• Investor– Indigenous– International

• Not all of the items above apply in all cases, and are gradually evolving ...

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IOC and NOC search synergy

IOC versus NOC

Production factors: Capital and Land

$ $Capital

Land

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• National Guardian / Monopolist– Original title-holder: PEMEX– Post-nationalization: Saudi ARAMCO, NIOC/NIGC, KOC (KPC)

• National Guardian and Regulator– Pertamina (pre-reform), PetroVietnam, Petronas, EGPC, NNPC, Sonatrach, Sonangol

• National Guardian and Foreign Investment Champion– Petronas, CNPC/CNOOC/Sinopec, PDVSA, NGC

• Domestic Investor (100% state owned)– OGDC, ONGC, SDFI

• National Wealth Participator– Petrobras, Statoil, PTTEP, YPFB (P.Andina / P.Chaco), CNPC/CNOOC/Sinopec

• Importing Nation Manager– ENAP

• Foreign Investment Champion– ENAP (Sipetrol), JNOC, KOC (Kufpec)

• Extinct– BNOC (Britoil), YPF, Repsol, PetroCanada (as NOC)

• Nouveaux Riches– Lukoil, Gasprom, Yukos, Sidanco, Sibneft, Rosneft

• Instruments of Forein Policy– BP, Shell, TotalFinaElf, ENI, ExxonMobil, ChevronTexaco

NOC TypesSimplified, arguable, roles continue to evolve ...

Source: Gaffney, Cline & Associates

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Regulatory Roles and Functions

• Contract management• Resource planning• Licensing• Depletion policy• Operations oversight• Health and Safety• Control of environmental sensitive areas• Market influence• Fiscal control• Employment• Goods and Services

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Who regulates ?

• Ministry• Classical administrator• Skills to NOC in many cases

• Agency• Board• Regulator

• NOC• Conflict of roles

• Sector regulation vs. commercial• Public interest vs. international standards

• Skills

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• Selected countries:

• What they have in commonE&P acreage area granted through bid rounds and

concession agreementsSignificant E&P offshore areas

Who regulates

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• Main E&P areas: Gulf of Mexico, Texas and Alaska

• Main regulator of E&P sector:

U. S. Department of Interior / Minerals Management Service - MMS (licensing of federal areas, royalties)

• Landowner has rights on the underground minerals• Extremely competitive industry: ~ 2 millions of royalty owners,

including 5.000 E&P companies

• Substantial source of income to government: • ~ US$ 6,0 billions / yr of leasing revenues• ~ US$ 5,6 billions / yr of royalties • ~ US$ 3,7 millions / yr of severeance taxes (state areas)

Regulator (s)

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• Main E&P areas : Onshore area in Province of Alberta and offshore areas in northeastern coast (Newfoundland and Nova Scotia)

• Regulators of E&P sector in such a provinces: Newfoundland - “Board” (concession) and Department of Mines and

Energy- DME (royalties) Nova Scotia - “Board” (concession) and Petroleum Directorate (royalties)

• Large oil and natural gas exporter to the US (~ 2 million boe / day) • Production concentrated in Province of Alberta (~ 60%)• Domestic market concentrated in east coast

Regulator (s)

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• Main E&P areas : Onshore West Australia (WA) and Queensland, offshore northwestern coast and Victoria coast

• Regulators of E&P sector in WA: Onshore licensing areas: Department of Minerals and Petroleum Resources

(DMPR) jointly with the Federal Government Offshore licensing areas : Federal Government by means of Petroleum and

Energy Division of the Commonwealth Department of Industry Tax and oil levies management:

Federal offshore areas (PRRT): Australian Taxation Office (ATO)

WA state onshore areas (royalties): DMPR

• Natural gas exporter, mainly to Japan, and oil importer: Indonesia is a significant oil supplier

Regulator (s)

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• Main E&P areas : Área “offshore” do Mar do Norte

• Regulators of E&P sector : Areas concession: Department of Trade and Industry (DTI) Management of government takes:

PRT / Royalty: Oil Taxation Office (OTO), subordinado ao

Inland Revenue Service

• Self-sufficient with respect to oil since 1980 and with respect to natural gas since 1996

• Production declining from 1999 onwards; several mature areas near abandonment

Regulator (s)

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• Main E&P areas : offshore: North Sea, Norwegian Sea and Barents Sea (frontier)

• Main regulators of E&P sector: Licensing: Ministry of Petroleum and Energy (MPE) Management of government takes:

Special Petroleum Tax (SPT): Oil Taxation Office,

Ministry of Finance

Royalties: Norwegian Petroleum Directorate (NPD),

Ministry of Petroleum and Energy

• Major exporter of oil and gas to Europe

Regulator (s)

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Experience of Brazil

From monopoly to regulator

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Institutional Evolution

1931193119311931 1934193419341934 1937193719371937 1945194519451945 19531953195319531938193819381938 1944194419441944 1995199519951995 1997199719971997

Decree 20,799 - Government Authorization

1934 Constitution - Concessions

1937 Constitution - Reserves: State property

CNP Set up CNP Set up

Lobato first oil finding (BA) Lobato first oil finding (BA)

Liberal Trend for Oil Sector Liberal Trend for Oil Sector

Law 2004 – Oil Monopoly / PETROBRAS Law 2004 – Oil Monopoly / PETROBRAS

9,795 Amendment - End of PETROBRAS Monopoly 9,795 Amendment - End of PETROBRAS Monopoly

Law 9,478 - ANP Law 9,478 - ANP

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• State monopoly from 1954 to 1995

• Risk Service Contracts in years 70 and 80

• Sole operator in early to mid 90s

• Oil Law (1997):– State grants E&P rights– Concessions through bid rounds

E&P activities in Brazil

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Four key processes:

Globalization: inevitable process – Brazil’s sovereign insertion in world context

Trade Liberalization: encourage competition of indigenous products with imported ones / increase competitiveness of local industry

National Currency Stabilization: resume economic planning activity and increased purchase power of low income population

Privatization / “state pull-out”: relieve the state of activities not related to its end activities and develop its skills to regulate (interfere in) sectors which render public services.

Changes in economy

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From Monopoly to State Regulator:

Necessity of investment to upgrade and extend infra-structureControversy of the role of an “entrepreneur state”Exhausted model regarding the direct involvement of the State in the economy

Results:

Reduction of inflation Insertion in international tradeAttraction of long term foreign capital (productive sector)Search of fiscal balance

Reasons of changing

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Dual role aspects

• Attract and foster E&P investments

• Licensing Rounds Division

• Regulator (control)

• Divisions responsible for the management of the concession agreement

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Foster E&P investments

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Regulator ( the watch dog)

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Not policy makers

Independents and skilled

Granted autonomy

Organized as a board

Board members with mandate for a given timeframe

and non-coincident with each other

Regulators in world context

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Thank you