Comparative Analysis of Fiscal Terms of Iran Petroleum Contract (IPC) and Production Sharing Contract (PSC): Case Study of South Azadegan Field

Document Type : Research Paper

Authors

1 PhD Candidate in Economics, Ferdowsi University of Mashhad

2 Professor of Economics, Ferdowsi University of Mashhad

3 Assistant Professor of Economics, Ferdowsi University of Mashhad

Abstract

This paper simulates and compares the fiscal terms of Iran Petroleum Contract (IPC) and Production Sharing Contract (PSC) for first time. The Scenario approach has been used, in which timing and the volume of investment and production profile are assumed as given and the effects of fiscal parameters of the contract on the key variables such as Internal Rate of Return (IRR) and take of the contractor are computed. This paper uses the technical and economic information of the South Azadegan field (phase II) as a case study for financial simulation. One of the significant results is the possibility of reaching the same economic and fiscal results regardless of the contract type. Another important result of this article is that the IPC fiscal regime is less flexible and progressive than PSC and is less attractive specifically in more capital intensive fields. The reason of this issue is some restriction in IPC such as amortization of the capital costs and having longer payback period and the lack of direct relation between IOC’s fee and the field revenue. 

Keywords

Main Subjects


  1. Amundsen, E. S., Andersen, C., & Sannarnes, J. G. (1992). Rent taxes on Norwegian hydropower generation. The Energy Journal, Jan 1, 97-116.
  2. Bacon, R., & Kojima, M. (2008). Coping with oil price volatility. International Bank for Reconstruction and Development/World Bank Group.
  3. Burness, H. S. (1976). On the taxation of nonreplenishable natural resources. Journal of Environmental Economics and Management3(4), 289-311.
  4. Daniel, P., Goldsworthy, B., Maliszewski, W., Puyo, D. M., & Watson, A. (2008). Evaluating fiscal regimes for resource projects: An example from oil development. In IMF Conference on Taxing Natural Resources.
  5. Dasgupta, P., Heal, G., & Stiglitz, J. E. (1980). The taxation of exhaustible resources. NBER Working Paper, N. 436.
  6. Deacon, R. T. (1993). Taxation, depletion, and welfare: A simulation study of the US petroleum resource. Journal of environmental economics and management24(2), 159-187.
  7. Outlook, E. A. E. (2015). Annual energy outlook; released April 2015. US Energy Information Administration (s760 ref EIA Annual Energy Outlook 2015).
  8. Gamponia, V., & Mendelsohn, R. (1985). The taxation of exhaustible resources. The Quarterly Journal of Economics100(1), 165-181.
  9. Gray, L. C. (1914). Rent under the assumption of exhaustibility. The Quarterly Journal of Economics28(3), 466-489.
  10. Heaps, T., & Helliwell, J. F. (1985). The taxation of natural resources. Handbook of public economics1, 421-472.
  11. Heaps, T. (1985). The taxation of nonreplenishable natural resources revisited. Journal of Environmental Economics and Management12(1), 14-27.
  12. Hogan, L., & Goldsworthy, B. (2010). 5 International mineral taxation. The Taxation of Petroleum and Minerals, 122.
  13. Hotelling, H. (1931). The economics of exhaustible resources. Journal of political Economy39(2), 137-175.
  14. Isehunwa, S., & Uzoalor, E. (2011). Evaluation of true government take under fixed and sliding royalty scales in Nigerian oil industry. Australian Journal of Basic and Applied Sciences5(3), 735-741.
  15. Johnston, D. (2001). International petroleum fiscal systems analysis. Penn Well Books.
  16. Johnston, D. (2003). Current developments in production sharing contracts and international petroleum concerns: from exodus to feeding frenzy-opposite ends of the spectrum. Petroleum Accounting and Financial Management Journal22(3), 122.
  17. Johnston, D. (2003). International exploration economics, risk, and contract analysis. Penn Well Books.
  18. Johnston, D., & Johnston, D. (2015, February). Fundamental petroleum fiscal considerations. Retrieved from oxford institute for energy studies: https://www.oxfordenergy.org/publications/fundamental-petroleum-fiscal-considerations.
  19. Kemp, A. G. (1987). Petroleum rent collection around the world. IRPP.
  20. Kemp, A. G. (1992). Development risks and petroleum fiscal systems: A comparative study of the UK, Norway, Denmark and the Netherlands. The Energy Journal13(3), 17-39.
  21. Kemp, A. G. (1994). International petroleum taxation in the 1990s. The Energy Journal, 291-309.
  22. Kemp, A. G., & Rose, D. (1985). Effects of petroleum taxation in the United Kingdom, Norway, Denmark, and the Netherlands: a comparative study. Energy J.;(United States)6.
  23. Luo, D., & Yan, N. (2010). Assessment of fiscal terms of international petroleum contracts. Petroleum exploration and development37(6), 756-762.
  24. Mitchell, J., Marcel, V. & Mitchell, B. (2015). Oil and gas mismatches: finance, investment and climate policy, Chatham House Research Paper, London.
  25. Smith, J. L. (1995). Calculating investment potential in South America. World Oil216(6).
  26. Smith, J. L. (1997). Taxation and investment in Russian oil. Journal of Energy Finance and Development, 5–23.
  27. Smith, J. L. (2012). Modeling the Impact of taxes on petroleum exploration and development. IMF Working Paper, WP/12/278.
  28. Stauffer, T. R., & Gault, J. C. (1985). Exploration risks and mineral taxation: how fiscal regimes affect exploration incentives. Energy J.;(United States)6.
  29. Tender committee for upstream oil & gas contracts secretariat. (2016, 10 2). Retrieved from: http://www.nioc.ir/portal/home/?generaltext/165305/165402/165360/Projects.
  30. Tordo, S. (2007). Fiscal systems for hydrocarbons: design issues (No. 123). World Bank Publications.
  31. Uhler, R. S. (1979). The rate of petroleum exploration and extraction. Advances in the Economics of Energy Resources, vol. 2. Edited by RS Pindyck. Greenwich, CT: JAI Press Inc., USA.
  32. Van Meurs, P. (1988). Financial and fiscal arrangements for petroleum development: an economic analysis. Petroleum Investment Policies in Developing Countries, 47-79.
  33. Van Meurs, A. P. H. (2009). Commentary on the November 2008 Iraq draft technical service contract. Oil, Gas & Energy Law Journal (OGEL)7(1).
  34. Van Meurs, P. (2012). Policy options for Alaska oil and gas. Presentation to the Alaska Senate Finance Committee, February, Available online at: http://aksenate.org/press/021312_PvM_Presentation.pdf.
  35. Van, M. P. (1997). World Fiscal Systems for Oil. Van Meurs Associates2, 509.
  36. Yücel, M. K. (1986). Dynamic analysis of severance taxation in a competitive exhaustible resource industry. Resources and Energy8(3), 201-218.
  37. Yusgiantoro, P., & Hsiao, F. S. (1993). Production-sharing contracts and decision-making in oil production: The case of Indonesia. Energy economics15(4), 245-256.
  38. Zhao, X., Luo, D., & Xia, L. (2012). Modelling optimal production rate with contract effects for international oil development projects. Energy45(1), 662-668.
  39. Zhu, L., Zhang, Z., & Fan, Y. (2015). Overseas oil investment projects under uncertainty: How to make informed decisions?. Journal of Policy Modeling37(5), 742-762.