技术经济学英文版演示文稿C42课件

4.3InternationalContractsInthelastsection,wediscussedtheimpactofthecontractbetweenthemineralownerandtheoilcompanyintheUnitedStates.Inthissection,weconcentrateontheapplicationofinternationalcontractsonthefeasibilityoffielddevelopmentsinothercountries.Overthelasttwodecades,theemphasisinpetroleumexplorationhassteadilyshiftedawayfromdomesticoilindustryandtowardstheinternationalarena.Theprimaryreasonforthisshiftisthefactthatmorethan82%oftheprovenreserveslieoutsidetheWesternHemisphere.Themajorityoftheunderexploredandunexploredsedimentarybasins(沉积盆地)oftheworldlieoutsidetheUnitedStates.TheprobabilityoffindinggiantorlargeoilfieldsismuchhigheroutsidetheUnitedStatesthanwithintheUnitedStates.

TheprobabilityoffindinggiantorlargeoilfieldsismuchhigheroutsidetheUnitedStatesthanwithintheUnitedStates.HydrocarbonfindingcostsinmaturebasinsoftheUnitedStatesaremuchhigherthanmanyothercounties.SeeFigure4.1whichcomparesthefindingcostsintheUnitedStateswithmanyothercountries.ThesetechnologicaladvantagesoutsidetheUnitedStates,whencoupledwiththestringentenvironmentalandotherregulationsintheUnitedStates,maketheinvestmentsinothercountriesevenmoreattractive.

Thissectionwilldiscussvariouscontractsusedbetweenthehostcountryandtheinternationaloilcompaniestoproceedwiththeexplorationanddevelopmentofpotentialhydrocarbonreserves.Itisimportanttorememberthattheobjectivesofthehostcountryandtheinternationaloilcompanycandiffersignificantly.Mostcountriesareafraidofexploitation,pollution,lossofnationalpride,andtherepetitionoftherecenthistoryatthehandsofthewesterncivilization.Thehostcountriesliketobetreatedasequalandbepartofthedevelopmentoftheirownmineralresourcessothatitwillbenefittheentirepopulationofthehostcountry.Ontheotherhand,theinternationaloilcompaniesareafraidofchangingtaxrules,expropriation(征用)ofoilandotherassets,nationalizationofaprivatecompany,andpoliticaluncertainties.Theoilcompaniesmaininterestiseconomical.Theywouldliketoproducethehydrocarbonsinthemostoptionalfashionsothattheycanmaximizethebenefits.Tostructureacontractbetweenthesetwopartieswhichwillcreateawin-winsituationforboththepartiesisachallengingtask.Thesolutionisthevarioustypesofcontractswhichhaveevolvedoverthelastthirtyyearswhichtrytobalancetheinterestofboththehostcountryandtheinternationaloilcompany.Inthefirstpartofthissection,wewilldiscussthebackgroundofinternationalcontractswhichledtothedevelopmentofmoderncontracts.Inthenextpart,wepresentthepurposeofeachofthepartiesinvolvedinthecontractsothattheunderstandingofthetermsinthecontractsbecomeseasy.Inthenextthreepartsweillustratethethreetypesofcontractswhicharemostcommonlyused.

4.3.1HistoryTheearlyhistoryoftheworldoilconcessionsismostlydictatedbytheresultsofthetwoworldwars.Theoilcompaniesfromthevictorsofthetwoworldwarslargelycontrolledtheoilproductionintheworld.Specifically,"sevensisters"(Exxon,Mobil,Chevron,Shell,Gulf[nowapartofChevron],TexacoandBritishPetroleum)dominatedtheworld’soilreservesaswellastransportation,refiningandmarketingofpetroleum.Realizingtheincreasingimportanceofoilinthemodemworld,manyofthe"sevensisters"signedcontractswiththerulersofthehostcountriestoacquiretherightstoexploreforandproducehydrocarbonsfromthesecountries.Althoughtheoriginalcontractsdifferedfromoneanother,manyofthesecontractscontainedsomecommonfeatures.

Thesefeaturesare:*Definitionofareawhichdescribedthephysicalboundaries.Oilcompanieshadtherighttoexploreforanddeveloptheseareas.*Minimumamountofdrillingrequiredoveraperiodoftimetillhydrocarbonsarefoundincommercialquantities.*Durationoftheagreementbetween60-75years.*Financialobligationsofcompanywhichincludesigningbonus,annualrentalfeeandroyaltiesforeachbarrelofoilproduced.*Provision(规定）tosupplydomesticoilrequirementstothehostcountryatsomepredeterminedcost(预计成本).*Otherrightssuchasfreedomoftaxationorproductioncontrols.Intheseagreements,thehostcountriesdidnotparticipateinmanagerial(管理)decisions.Solebenefitreceivedbythehostcountriesistheroyalties.Inmanycontracts,theroyaltieswerefixedataflatrate(统一费率)

perbarrelofoilratherthanbasedonthesaleprice.Evenwhentheroyaltiesarebasedonthesaleprice,theoilpricewasprimarilysetbytheoilcompanies.Sincemanyconcessionswereheld(控制)bytheconsortiaofoilcompanies,bymakingjointoff-takeagreements,thetotalproductionfromvirtuallyallmajorconcessionscouldbecontrolled.This,inturn,controlledthepriceoftheoilandhencetheroyaltypayments.Manyhostcountriesstartedrealizingthedrawbacksofthesetraditionalagreements.Themajorproblembeingthelackofcontrolovertheexploitationofmineralsontheirownsovereign(统治)land.Venezuelademandedthattheoilcontractsberevisedtoallowforhigherroyaltiesandtaxesinreturnforafortyyearrenewal.In1948,VenezuelapassedalawthatestablishedtheVenezuelangovernmentasapartnerwiththemultinational(跨国)oilcompanies.

InMexico,theoilcompaniesweregrantedvirtualownershipintheoilproducedfromtheconcessionwithoutanytermlimit.Thischangedin1917withchangeinMexicanConstitutionwhichexplicitlygrantedtheownershipofnaturalresourcestotheMexicangovernment.Overthenexttwentyyears,theMexicangovernmentimposednewtaxeswhichoilcompaniesrefusedtopay.Thisledtoincreasingdisputesbetweenthetwoparties.Eventually,in1938,thegovernmentannouncedexpropriationoftheoilindustry,transferringtheproductiontoitsnationaloilcompany,Pemex.MostcountriesintheMiddleEastresortedtore-negotiationoftheoriginalcontractstosecuremorefavorableterms.Severalfactorscontributedtore-negotiationofthesecontracts.First,theemergenceofsmallormediumsizeoilcompanieswhichwerenotpartofthe"sevensisters."Tocompetewiththe"sevensisters"thesecompanieswerewillingtoprovidemorefavorabletermstothehostcountries.Second,severaloilproducingcountriesjoinedtogethertoformtheOrganizationofPetroleumExportingCountries(OPEC).

Theexistenceofoneentityrepresentingtheinterestsofmanycountrieshelpedcoordinateeffortstore-negotiatetheoriginalcontracts.OPECalsofacilitatedsharingofinformationbetweendifferentcountrieshelpingthemtore-negotiatecontractswithmorefavorableterms.Italsobecomeincreasinglyobviousthatitisunfairtotieroyaltiesofindividualcountriestothepostedpricescontrolledbythe"sevensisters."Bytheendofthe1970’s,themajorityoftheMiddleEasternOPECcountriesnationalizedtheirpetroleumindustries.

Duringthe1970’sand1980’s,producingcountriesoutsideOPECincreasinglydemandedbettertermsinthecontractsbetweenthehostcountryoritsnationalizedoilcompanyandtheinternationaloilcompany.Theoilpriceswherehighandtheareaswheretheinternationaloilcompaniescanexplorewerelimited.ThisresultedinsignificantoilproductionoutsidetheOPECandresultedindecreasingshareoftheOPECcountriesintheworldwideproduction.Eventually,in1985,OPECabandoneditsefforttocontroloilprices.Instead,ittargetedcertainpercentageoftheworld’sshareofoilproduction.Thisresultedinacollapseoftheoilprice.4.3.2ObjectivesInsigningacontractbetweenahostcountryandaninternationaloilcompany,bothpartieswanttoachievecertainobjectives.Independentofthetypeofcontractwhichissignedbetweenthetwoparties,bothpartiestrytosatisfymostoftheobjectives.Tounderstandthetermsincludedinthecontract,itisimportanttoconsidertheobjectivesofthepartiesinvolvedinthecontract.ObjectivesOfTheHostCountry

Theobjectivesofthehostcountrycanbedividedintothreebroadcategories;financial,politicalandtechnical.Eachoftheseobjectivesaredescribedbelow.*FinancialByinvitinganinternationaloilcompanytoexploreforandproducehydrocarbons,thehostcountrycaneliminate,oratleast,minimizetheinitialcapitalinvestment.Iftheprojectissuccessful,byensuringappropriatetermsinthecontract,thehostcountrycansecuresignificantamountoffinancialbenefitsfromtheproductionofhydrocarbons.Thesebenefitscanbereinvestedinothersimilarordifferentprojectsofnationalinterest.*PoliticalMostofthedevelopingcountrieshavebeenpreviouslycolonizedbyWesterncountries.Awardingcontractstointernationaloilcompaniesisasensitiveissueandinvolvesanationalpride.Toovercomethisforeigndependence,thehostcountrieswouldliketomaintaincontrolovertheoperationsoftheprojectaswellasthehydrocarbonsproducedasaresultofthecontract.Insteadofbeingpassivebeneficiaries,thehostcountrieswouldprefertoplayanactiveroleinthefielddevelopmentssothatthenaturalresourcesareoptimallyexploitedtothecountry'sbenefit.Further,bycontrollingthehydrocarbonproduction,thecountrymaybeabletoinfluencedesiredforeignpolicygoals.Itcanalsoreducetheimportsandgaineconomicefficiency.ObjectivesOfInternationalOilCompaniesSimilartotheobjectivesofhostcountries,theobjectivesofinternationaloilcompaniescanbedescribedinthreebroadcategories:financial,operationalandpolitical.*FinancialThecompanieswouldliketomaximizetheirbenefitwithminimumamountofcost.Theywillalsopreferthattheinitialinvestmentberecoveredassoonaspossible(shortpaybackperiod)soastominimizetheimpactofanypoliticaluncertainties.Thecompaniesalsopreferthattherevenuegeneratedcanberepatriated(返回国内)andtheirshareofcrudecanbesoldintheopenworldmarket.Ontheotherhand,thecompanieswanttobecarefulastowhattermsareagreedtoinsigningthecontract.Thecompaniesprefernottosetaprecedentinonecontractwhichcanbeusedagainstthemineitherthesamecountryorinothercountries.Ifthecompanygivesintoomuch,itwillbesubjectedtosimilardemandsinthefuture.4.3.3TypesOfContractsThethreetypesofcontractsmostcommonlyusedbetweenahostcountryandaninternationaloilcompanyareconcessionagreements,productionsharingagreementsandservicecontracts.concession租让制,世界上进行石油勘探开发最早使用的一种体制。它规定石油公司有权在租让区进行勘探、开发、生产以及根据自己所确定的价格和数量、出口所生产的石油，主权国通常只得到矿区使用费作为报酬。目前仍有一些国家对外国石油公司采取租让制方式，但已有许多改进，有的还可得到其他利润和定金，特别是增加了参股条款和所得税。

productionsharingagreements

国际上石油合作开发的一种很通行的合同形式。印度尼西亚最早采用。其主要特点是规定石油公司可从合同区油田的每年原油产量中通过产品分成办法回收其成本，并在向资源国政府交纳所得税后享受利润分成，由合同双方按规定比例分配，以原油支付。

servicecontracts.在石油合作中，服务合同是其中的一种方式，这种合同方式一般有两种，一种是单纯承包性质的，目前在石油界很少采用。另一种是风险性质的，由石油公司提供勘探资金和技术，并负责具体实施作业，承包全部勘探风险，在投产后，一般可以低价取得原油，作为报酬。Inthissection,wewillbrieflydescribeeachofthesecontractshighlightingtheircommonfeaturesandthefiscal(财政的)impactofeachofthesecontracts.Detailedeconomicevaluationofeachofthesecontractsisdifferedtillthenextsection.Itisimportanttonotethatnoneofthetypesofcontractsiseconomicallyinherentlysuperiortotheothertypesofcontracts.Bychangingtheindividualtermsofaparticularcontract,anycontractcanbemademoreorlessbeneficialtoanyparty.Althoughwewillbediscussingthecontractsbetweenthehostcountryandaninternationaloilcompany,asapracticalmatter,acontractistypicallysignedbetweenanationalizedoilcompanyandaninternationaloilcompany.Creationofnationaloilcompanyishelpfulinseparatingthefinancialbenefitsrecoveredfromtheoilrevenues.Also,bycreatingacompany,itiseasiertodeveloptechnicalexpertiseamongthecitizensofthecountry.Itisalsobelievedthataseparatecompanywillbeabletorunmoreefficientlywithouttheburdenofimposingbureaucracy.Althoughseparate,thesenationalcompanieshavethesameobjectivesasthehostcountries.Table4.2liststhenamesofthecountryanditsnationaloilcompany.ThemostnotableexceptionsinthislistaretheUnitedStatesandtheUnitedKingdomwhodonothaveanationalizedoilcompany.Table4.2NationalOilCompanyInvariousCounties(afterAllenSeba)CompanyCountryADNOCAbuDhabiSONATRACHAlgeriaYPFArgentinaYPFBBoliviaPetrobrasBrazilPetro-CanadaCanadaENAPChileEcopetrolColumbiaCEPEEcuadorEGPCEgyptCFPTotalFranceElf-AquitaneFrancePertaminaIndonesiaONGCIndiaNIOCIraqINOCIraqENIItalyJNOCJapanKOCKuwaitPetronasMalaysiaPemexMexicoNNPCNigeriaStatoilNorwayOGDCPakistanPetroperuPeruTrintocTrinidad&TobagoANCAPUrugauyPDVSAVenezuela*ConcessionAgreementsConcessiontypeofagreementisverysimilartothestandardoilandgasleasesignedbetweenamineralownerandtheproducer.Inthisagreement,thehostcountryassignstherightstoexploreforandproducefromaconcessionareatotheinternationaloilcompany.Inreturn,thehostcountryreceivesroyaltypaymentsandincometaxesfromtheproceeds.Inaddition,thehostcountrymayalsoreceiveasigningbonusandotherincentivessuchastrainingofthedomesticworkforce.Inthesetypesofagreements,thehostcountrydoesnotparticipateindaytodayoperationsofthefield.Onemodification

usedforthistypeofcontractisthatthehostcountry,inadditiontoreceivingbenefits,mayalsoparticipateinthedaytodayoperationofthecontract.Thismodifiedcontractiscalledaparticipationagreement.*ProductionSharingContractsInthesetypesofcontracts,theinternationaloilcompanybearsthecostandriskduringtheexplorationphase.However,ifsuccessful,thehostcountryparticipatesduringtheproductionphasebypayingforpartofthecostsandreceivingpartoftheproductionbasedontheagreeduponformula.Inaddition,thehostcountryalsoreceivesincometaxesontheinternationalcompany'sprofits.*ServiceContractsInservicecontracts,theinternationaloilcompanyactsasaservicecontractor.Thehostcountrywillinvitetheinternationaloilcompanytoprovidecertainservices.Thisincludesexplorationofanewareaaswellasoperationofthefield.Theinternationaloilcompanyinreturnwillreceivefixedfeesaswellasfeesbasedonbarrelsofoilproduced.Thecontractordoesnothold(控制)anyinterestintheproducingfield.Inthatsense,theservicecontractshavetheleastcontrolbytheinternationaloilcompanies.Irrespectiveofthetypeofcontractsigned,thereisenoughflexibility(弹性)withinindividualtermsofthecontracttomakeitmoreorlessattractive.Inevaluatingtheeconomicimpactofthecontract,thefollowingeconomicconsiderationsareveryimportant.*HostCountry’sNetShareDependingonthetermsofthecontract,thenetshareofthehostcountrycanvarysignificantly.Wecandefinethehostcountry'sshareas,hostcountry'sshare=cashflowaftercosts-netrevenueofcontractor(4.32)wherecashflowaftercostsisdefinedas,cashflowaftercosts=grossrevenue-projectcapitalandoperatingcosts(4.33)Netrevenueofcontractoristherevenuereceivedbytheinternationaloilcompanyafterpayingalltheroyalties,taxes,andproductiontothehostcountry.Itisthenetprofitthecontractor(thecompany)willreceive.Asapercentage,wecancalculatethehostcountry'sshareas,Eq.4.34presentsthepercentageoftherevenueaftercostsreceivedbythehostcountry.Largertheshare,harderitistomaketheprojectmoreeconomicallyfavorable.Figure4.2presentsthetypicalsharesreceivedbyvariouscountries.Whatisremarkableisthatapproximately90%ofthecountriesreceivemorethan50%oftheshare.Also,anothernoteworthyaspectofthisgraphisthattheshareofahostcountrydoesnotdependonthetypeofthecontract.ConcessionAgreementproductionsharingagreementsCountry’sShareservicecontracts

Irelandwiththesmallestshare(25%)andNorwaywiththelargestshare(88%)bothhaveconcessiontypesofagreements.Ontheotherhand,Guyanawithashareof51%andBeninwithashareof88%bothhaveproductionsharingtypesofagreements.Thesesharesareaveragesharescalculatedbasedonvariousscenarios.Itisimportantthatbeforesigningacontract,suchtypeofanalysisisconductedtounderstandwhatsharethehostcountrywillreceiveunderdifferentscenarios.*EconomicEfficiencyOfTheContractAneconomicallyefficientcontractwilltaxverylightly(轻)productionfrommarginalfields,whereas,itwilltaxheavilythefieldswhicharemostprofitable(有利可图的).Thistypeofefficiencyisespeciallyrelevantwhentheinternationaloilcompanydiscoversmarginaloilfields.Ifformarginaloilfields,thehostcountry’ssharedoesnotchangeandthetaxstructureremainsthesame,thesefieldswillbeverydifficulttoproduceandcannotbeeconomicallyjustified.Itisbecomingincreasinglydifficulttofindgiantoilfields.Thefocusisbecomingmoreconcentratedonsmallormarginalfields.Thehostcountrywillhavetoshowsomeflexibilityincontractualtermssothatthesmallfieldscanbedevelopedinaneconomicefficientmanner.NPVafterCountry’sshareefficientInefficientNPVbeforeCountry’sshareFigure4.3:EfficiencyofContractFigure4.3showsaplotofeconomicallyefficientcontractandeconomicallyinefficientcontract.Foreconomicallyefficientcontracts,theNPVofcashflowbeforethehostcountry’sshareiscloselytiedwiththeNPVofthehostcountry'sshare,thelinepassingthroughtheorigin.Forinefficientcontracts,theNPVofcashflowbeforethehostcountry’sshareispositive;however,theNPVafterthehostcountry’sshareisnegative.

Thatis,byparticipatinginthiscontract,thehostcountrypreventedthedevelopmentofthefieldwhichwouldhavebeenpossiblewithouttheparticipation.Theinefficiencyresultsfromthetermsofthecontractwhichrelatestogrossrevenueorcertainlevelofproductionratherthantheprofitabilityoftheproject.Acommonexampleisroyaltypaymentwhichisapercentageofthegrossrevenueandignorescosts.Anotherexampleisalocaltaxwhichisleviedbasedonthegrossrevenue.Marginalprojectsareparticularlyaffectedbysuchtermsofthecontract.*TaxStructureTheoveralltaxstructurecanbeprogressiveorregressive.Progressivetaxstructureinvolvesincreasingshareofthehostcountryastheprofitabilityoftheprojectincreases.Whentheprojectislessprofitable,theproportionateshareofthehostcountryissmallaswell.Thistypeofprogressivestructurewillalsoencouragethedevelopmentofthemarginalorsmallfields.ProjectProfitabilityRegressiveProgressive100%75%50%25%0%Country'sshare

Figure4.4ProgressiveVs.regressivetaxregimeFigure4.4showsschematicallybothprogressiveandregressivetaxstructures.Inregressivestructures,thehostcountry'sshareincreasesastheprofitabilityoftheprojectgetssmaller.Aneutralfiscalregionistheonewherethehostcountry'sshareisnotaffectedbytheprofitabilityoftheproject.Inanalyzingtheeconomicimpactofanyproject,theabovethreeconsiderationsareimportant.Analysisoftheseconsiderationswillallowaproperevaluationoftheprojectsundervariousscenariosbeforereachingafinaldecisionastowhethertoinvestmoneyinagivenproject.Inthefollowingsections,wewilldiscussthethreetypesofcontractsinadditionaldetailandevaluatetheireconomicimpact.4.3.4ConcessionAgreementsAsstatedbefore,inmodernconcessionagreements,thehostcountryhasnodirectinvolvementinthemanagementofdaytodayoperations.Inmostinstances,thehostcountrywillopenupcertainareasforasealed(密封的)biddingprocess.Thecontractingcompanieswillcompeteforthatareawithseveralincentives,includingasigningbonus(upfront)payment,royaltiesandtaxarrangements.Ifsuccessful,thehostcountrywillassigntherighttothecontractingcompanytoexploreforanddevelopcertainareasinreturnforashareofproceeds(royalty)andtaxes.

Althoughtheindividualcontractsvary,someofthecommonfeaturesincludedintheconcessionagreementare:*Theinternationaloilcompany,solelyatrisk,hastheexclusiverighttoexploreforandexploitpetroleumreservesinaconcessionarea.Thecompanyisalsoresponsibleforcostsassociatedwiththeserights.*Theinternationaloilcompanyhasacontractual契约obligationtosupplypartoftheproductiontothedomesticmarket.Beyondthat,thecompanycandisposetheremainingproductionintheopenmarket.*Duringtheexplorationphase,thecompanyhastopaysurfacerentalstothehostcountry.*Theinternationaloilcompanyhastopaypartofthegrossrevenueinkindorincash.*Theinternationaloilcompanyhastopayincometaxonthetaxableincome.*Theinternationaloilcompanymayhavetopayasigningbonusandproductionbonustiedtoattainingacertainlevelofproduction.*Theinternationaloilcompanyownstheequipmentandinstallationsusedintheoperations.*Thecontractwillbeineffectforalimiteddurationdependingonwhethertheexplorationissuccessfulornot.Forsuccessfulexploration,thecontractmaybeineffectbetween30to50years.Onemaindisadvantageoftheconcessionagreementisthatthehostcountryhasnocontrolovertheoperationofthefield.Also,thecitizensofthecountrymaynotgetachancetolearnthetechnicalskillssothattheycanpursueindependentenergycourse.Onewaytoovercomesomeofthesedifficultiesistorequireinthecontractthatpartoftheproceedsshouldbeobligatedtowardstechnicaltrainingofdomesticforce.Also,thehostcountrycanenforcearequirementthatthenumberofforeignnationalsberestrictedtoacertainquantitywhichcanbereducedastheoperationproceeds.Amodificationoftheconcessionagreementisajointventureagreement.Inajointventureagreement,thehostcountry(oritsfullyownednationaloilcompany)participateswiththeinternationaloilcompanyintheexplorationandthedevelopmentphase.General,theinternationaloilcompanycarriesthehostcountry'sinterestthroughtheexplorationphase.Iftheexplorationeffortissuccessful,theinterestofthehostcountrymaybestraightup.Thepercentageofthehostcountrycanvarygreatly.Itcanbeassmallas5%oritcanbeashighasmorethan50%.Thepercentagecanalsobedifferentduringtheexplorationphaseandtheproductionphase.Anothermodificationofjointventureagreementistheformation(形成)ofanewoperatingcompanyinahostcountrywhichisco-ownedbytheinternationaloilcompanyandthehostcountry.Toretainmanagementcontrol,thehostcountrymayownmorethan50%oftheshare.Evenunderthismodification,theinternationaloilcompanyhasanobligationtocarrytheinterestofthehostcountryduringtheexplorationphase,andinsomeinstances,thedevelopmentphase.Theadvantageofjointventureagreementfromthehostcountry'sperspectiveisthemanagementcontrol,oratleast,theinfluence.Also,byparticipatinginthedaytodayoperations,thedomesticlaborforcecanlearnthepracticalsideoftheoperation.Thisshouldhelpinthefuturewhenthedomesticoilcompanyventuresonitsown.TheschematicoftheoverallcashflowcalculationsareshowninFigure4.5forstandardconcessiontypesofagreementsandjointventureagreements.Theflowdiagramalsoshowssamplecalculationsstartingwithl,000unitsofgrossrevenue.LessLessLessLessEqualToEqualToLessLessEqualToEqualToLessEqualToConcessionAgreementNetCashFlow$375GrossRevenue$1,000Operatingandcapitalizedcosts$100Royalty@15%=$150Royalty@15%=$150Operatingandcapitalizedcosts$100edcosts$200GrossRevenue$1,000JointVentureAgreementTaxableIncome$750TaxableIncome$750Tax@50%=$375NetProfit$450Tax@40%=$300HostCountry’sShare=525/900=58.33%Country’sParticipation@16.7%=$75NetCashflow$375HostCountry’sShare=525/900=58.33%Figure4.5SchematicofcashflowproconcessionagreementsExample4.17Aroyaltyagreementissignedbetweenaninternationaloilcompanyandanationaloilcompany.Theagreementcallsfor20%oftheroyaltyinterestonthegrossincome.Thecapitalizedexpenditurecanbedepreciatedoverasevenyearperiodusingadoubledecliningbalancemethodwiththeremainingbalancetobedepreciatedinyearseven.Depreciationcanonlystartaftertheproductionhascommenced.Theincometaxrateis55%peryear.Thefollowingdatafortheexpectedcostsandproductionratesaregathered.Examinetheeconomicfeasibilityoftheproject.Capitalexpenditure:$60millioninyearone$50millioninyeartwo$60millioninyearthree$50millioninyearfourInitialproduction:15millionbblsinfirstyearStatinginyearfourProductiondeclinerate:10%peryearYearsofproduction:15yearsOperatingcosts:$18millioninyearfourOperatingcostdeclinerate:6%peryearOilprice:$18.5perbarrelassumedconstantMROR:15%YearProduction

MMbblsGross

revenue

Million$Operating

costs

Million$Royalty

Million$Depreciation

Million$Taxable

Income

Million$Tax

Million$Net

Income

Million$1-60.00-60.002-50.00-50.003-60.00-60.00415.00227.5018.0055.5062.86141.1477.6376.37513.50249.7516.9249.9544.90137.9875.89106.99612.15224.7815.9044.9632.07131.8572.5191.40710.94202.3014.9540.4622.91123.9868.1978.7089.84182.0714.0536.4116.36115.2463.3868.2298.86163.8613.2132.7711.69106.1958.4059.47107.97147.4712.4229.4929.2276.3441.9963.57117.17132.7311.6726.5594.5151.9842.53126.46119.4510.9723.8984.5946.5338.07135.81107