PETROLET]M

CONTRA
CTUAL
AGREEMENTS
a br i ef backgr ound
of
pet r or eum- Agr eement
1!il'-i*.
-
To understand the- concept
for Mal aysi a
producti on
shari ng
contract (Psc)
and to knorv the
provisions
of the
psc. \
To devel op a computer programs
for petroreum
economi c
analysis incorporating
the
pSC
terms.
i
')
3.
OBJECTTVES
1- To gi ve
Contracts.
PETROLEUM
EXPLORATION
AI{D DEVELOPMENT
ACTN{TIES
IS A FLINCTION
OF :
1. Geological Potential
2.
"
Accessibility of Exploration
Areas
3. Government Commitment
/
policy
4.
Political and Economic
Stability
5.
Histor,v of the countr'
'..
rl.elation
rvith Foreign rnyestors
6. Petroleum Contract Terrns
/ Agreement
- 1-
, l :
FUNDAI\,IENTAL A SPECT oF PETROLEUM
ARRANGEMENT
1. Risk and Financing
f nt ernat i onal oi l compani es provi de f i nanci al and t echni ca!
resources for exploration
and assume the risk of failure.
2. Profitability
rn event of success, the oil company
expects,-t6--e'6rn a profit
-commensurate
rvith risk.
Management
Amount of i nfl uence
and di recti on that the i nternati onal
'
company is allorved to exercise in the conduct of its operations
and planning of its development
and exproration schedule. .
OBJECTTVES OF THE PETROLEUM
CONTRACT TERMS
1. To attract investment from foreign oil company.
2. fncrease reserYe and maximize reyenue of the host countries.
C URREI\T C O NTRA C TUAL A RRA}.IGEMENT B ET\\TEEN
PETROLET]M CON{PANIES AND HOST GOVERNMENT
1. Concessi on Agreement
2. Production Sharing Contract (pSC)
3. Serrice Contract
4.
Joi nt
\renture Agreement
3.
- 2-
., .i
{+
7t
#
CONCESSION AGREEMENT
# ori gi nal system used i n ,ro.l d petroreum arrangement.
l i Tradi ti onu,rr.on.ern pri mari l y
on fi nanci al aspect.
# Absence of direct government
participation
in operations.
# The oi l company recei ve the ri ght to expl ore, produce
and
market the petroleum
in exchange of
.royalty,
tax and bonus
payment.
Usualll'extra provisions
added : training programs.
rr
i\{ethod of granting
concession contract :
Negotiation or competitive bidding
Bid may be made on the basis of :
i) size of bonus
ii) Ievel of exploration expenditure
iii) numbers of rvell drill ov_er specific period
ir) royalty, etc.
# Practice in UK, Norrvay, U.S.A, and Australia
PRODUCTION SHARING CONTRACT
# Origin from Indohesia in 1966.
# Production Sharing but rvithout equity and cost sharing from
the government.
# Di vi de producti on
betrveen government and contractor afi er
.
allowing poition for recovery cost.
, I -
# Impose tax and royalty.
# 3 basic element in the PSC
f
i) cost of recover-T
i i ) producti on spl i t
i i i ) i ncome tax
iv) other provisions
Practiced in Malaysia, Indonesia.
-
i l,:..r:-.'
SER\TCE COI\TRACTS
The forei gn oi l company executes the rvi shes of the host
country and has no resources i nterest i n the resources
themselves.
Usually the service is paid in cash.
Tlvo types of seryices contract :
i) Risk Contracts
ii)
J.{o
risk or Pure Serviee Contracts
Confract
All the risk fall upon the contracting companies, they provide
the capital required for exploration and production.
If no discovery ismade, the contract is terminated.
I n t he event of di scovery, t he company bri ngs i t i nt o
producti on and i ts expenses are rei mbursed rvi th i nterest and
risk fee.
Most of the casg Nati onal oi l company (NoC) rvoul d operate
the fi el d ounce i t brought i nto producti on.
Practi ce i n Argenti na, Brazi l and Peru.
- 4-
#
+r
tf
Risk
++
tt
#
ft
+r
tt
4
7t
J+
t?
No
#
#
Risk or Pure Service Contract
The pri vate oi l company i s pai d a fi x fee for i ts seryi ces-
Pr act i cc i n Saudi Ar abi a, Kuwai t ,
Qat ar ,
Bahr ai n and
Venezuel a.
JOINT VENTURE
::Errs:tLr-irrF
Involves
joint
ounership of asset and concession rights, sharing
of a certain cost of operation and a sharing of net rlvenuen
Usually, the private company almost always designated as the
operator and the NOC usually participate in the management
through a
joint
management committee.
Generally trvo types of_arrangements :
i) NOC does not share the costs until a commercial field
has been discovered, so that the
joint
cost sharing does
not occur until after the development and exploration
period.
ii) NOC shares in cost
"oa
,irt s during exploration as rvell
as during the development and exploitation period.
JI
tt
#
- 5-
MALAYSIA
PRODUCTION
SHARING
CONTRACT
(PSC)
ECONOMIC
S AND FINANCIAL
STUDY
l . THE PASI ' . . . . pri or
t o t 97S
@ CONCES: I pryS^
grant ed
by St at e Government
(i . e.
Sararvak,
Sabah
& Terengganu;
contractor
had excrusive
rights
to Exprore and
produce
SHELL had oil production
in BARAM
DELTA,Area.
EPMI rvas
still exploring
in West Malaysia.
SI{ELL paid
Royalty
and Taxes to Government.
profit
about 40Vo ofgross
revenue.
The coNcESSIoN
ceased
on Aprir r, rg7s as a resurt
of
Petroleum
Development
Act (pDA).
PETRONAS
became
orvner
and r\,Ianager
of resources
n'ith exclusive
.lgl$
to Explore
and
proiuce,
otr hor.
",
ryell as onshore
Malaysia.
@ SHELL and
EPMI
became
, , C0Nf RACTOR, ,
t o
PETRONAS
under the
pSC.
f -
_l
-t
2-
PETROLEUM
DEVELOPI \ {ENT
ACT and
product i on
Sharing Contract
rh.
JVlalaysian
Minister
of e.i*".y
rndustries
rvhen
introducing
the
pDA
in
parriarn.ni-ir, 'Lgi4,
exprained
the
production
sharing
concept
as follo\r,s
:_
PETRONAS
shail ha'e the excrusi'e
rights to exprore
for
and produce
petrol eum
i n the country.
i:TgYS
shall
lglqpolqibte for the management
of
t he
pet r ol eL
petr.oleum
operationi
ina ihe oir cornpaniirrarr
ue
:..:I:Tible
to
pETRONAS
for these
opei"tions
as
@
@
@
@
@
@
Cbntractor.
- 6-
o The or vner shi p
of oi r and Gas shal l vest i n t he
Government or PETRONAS
and shal l pass
t o t he
cont ract or onl y af t er t he Government has deci ded
on
the producti on
that shoul d accrue to the contractor.
o The cont ract or
shal l f urni sh ai l t he necessary ri sk
capi t al and provi de
at l t echni cal assi st ance f or t he
exp_l orati on and producti on
of oi r and gas. cost recovery
will be allorved only if oil or gas is produced and then ii
";,bhal l
be l i mi ted to a maxi mum
of a0 vo of the producti on
-
per annum. (Presentl y
i t i s 20vo for oi l and25vo for gas).
o The remai ni ng product i on,
af t er deduct i on
gf t he
percentage
for cost recovery, shal l be spl i t rvi th the
bigger share going to PETRONAS. (presently
this split is
70:30 in favor of PETRONAS)
o The
_orvnership
of all project-related assets acquired
by
the Contractor shall pass to
pETRONAS.
f
o
I
Th" Iau's of Plala-vsia shall apply to PSC.
i
After a series of negotiation, PETRONAS entered into PSCs rvith
EPMr for Terengganu and rvith sSB and SSPCIPECTEN for
Sararvak and Sabah, respectively. The Contracts lvere signed at.the
end of L976 (Nov./Dec.)
with ietroactive effect from lst April l97S;
they reflect the concepts outlined above. These PSC's are referred to
as the "L976 PSC".
since then, PETRONAS has signed severar other
pSC's,
namely :
1- 1985
Jv
PSC rvith SSB and carigali for 5 Baram Delta Fields
relinquished by SSB at various stages.
2. BARAI\'I DELTA'PSC
signed in 1989 rvith ssB and carigali
for 9 Baram Delta oii fields.
3- NEw PSC' s i ncor por at i ng
sever al at t r act i ve t er ms as
compared to the 1976 PSC. These Nerv
pSC' s
are referred to
b1' the Contract Area name (e.g.
SB1, SK5,
pMl , pMS
etc.,
some 20 PSC' s \vere si gned i n 1987/88.
?:---'
: r : : j . 1 .
- . , . . : . r . . , , . - i . - , - . - . - . - . ; +
3. THE PSC PROVISIONS
- 7 -
F
Tl r.
provi si ons
of rhe t97 6
pscs
-of EPMI,
ssB
"rX SSPCl Pecten are vi rtual l y
the same and rye shal l refer to them
si mpl y as the oLD PsC. l ve shal l fi rst revi erv the provi si ons
and t erms of t he oLD PSC and summari zed at t he end t he
sal i dnt i ncorporated i n the NEW
pSCs.
,"
v
The major provisions
of OLD
pSC
are :
. a
t l
'
' r a. I a: .
as
tl
EXPLORATION
PERIOD
DEVELOPMENT
PERIOD
PRODUCTION
PEKIOD
- MANAGEMENT
OT OPERATIONS
- CONSULTATION
and AppROVALS
-
PR ODUCTION
SHARING, OIL and GAS
Under the PSC, Contractor i s gi ven a contract area rvhi ch i t
may expl ore for and produce petrol eum.
The contract area
divided into a number of sub-blocks based on geographical
co-
ordinates
3.1 DPLORATION PERIOD
o coMMENcE
rvithin 3 months after signing the
*
PSC
I f i n a part i cul i r
SUB-BLOCK Commerci al
quantities
of OIL are not found within 5 years (3 +
2 years?)
such bl ock has t o be ret urned
t o
PETRONAS.
The 2 year
extension is at PETRONAS, discretion.
PSC contains minimum exploration commitment.
Contractor has to spend a speci fi c mi ni mum
sum
on various exploration activities.
3.2 DEVELOPNIENTPERIOD
o COMNI ENCE rvhen oi l i s f ound i n commerci al
quanti ty.
o The sub- bl ock
i n quest i on i s cal l ed
'
DEVELOPMENT
area.
- 8-
o - ltithin
4 years
thereafter
(Z
+ Z years)
the
contractor
has lo produce
oir from the
sub-brock.
o The 2 yearextension
is at *ETR.NAS
discretion.
J
o shoul d t hi s deadri ne
not be met ,
cont ract or
has
t o
return the
sub-block
to PETRONAS.
o Dur i ng
t he
dever opment
per i od.
cont r act or
prepares
a comprehensi ve
pran (FDp)
ror ttr"
derelopme"t^".n9
production
of Oif (*_;_r;;;
different
for GAS).
o once PETR.NAS'
approvar
has been obt*ned
for
FDP, t he
n. ". rs"l y
.
-deqi gn,
f ro. urernent ,
const r uct i on,
i nsi at l at i ; ",
- dr i i l i ng
&
commissioning
activities
take pi^..
so that
orl
PRODUCTION
can commence.
PRODUCTION
PERIOD
o coMMENcE
rvhen
FrRST
coMN{ERcrAL
LIFTING
of OIL from rhe sub-btoct takes pl;;.-
o From th-en
onrvards
the
sub-brock
is called
a
pRoDucTroN
anEal";;."
;i't.".tor
may
produce
o'from
the production
"r."
fo.
"
p;;;
of 15 years.
(r\Dp
fields
on negofiated
terms).
o The overat
duration
of
psc-in
24 years (20
+2+2).
As a result,
the production
of o' ,rrrd.. the
current
PSC will come
to an end in lggg.
o certain
oil fields
in ssB area were arready
on
production
at the time
psc
rvas
sign"a.
ro. these
fi el ds, the,I5-year
producti on
peri odl s
from
the
dat e
of l i f ri ng
and rh9 p. oau. i i on
peri od
termi nates
pri or
to the end oi
psc.
severar
fi erds
i n the Baram
Del ta
fal l i n thi s cate*o.r,
the are
no\r' co*ered
by the
BARAN{
DEL:TA' pSC,-;;
di scussed
Iater.
-
+':>*..
3.3
I
Associ ated-gas
Non-associ ated
'
peri od
of up to
FIELD.
Wi rhi n
fol l ou' s
the same rul e as OIL. For
gas,
PSC provi des
a HOLDING
5 years' after
di scovery
of a GAS
thi s S-_vear
peri od,
Contractor
has
- 9-
l o_prepare
and.
agree
a
PETRONAS. prodiction
devel opment
pl an
period
is 15
).ears.
3.1 i\{ANf
GEMENT
OF OPERATTONS
I
o
vrnrno.ryAS-as
the
Nati ol at
oi r
corporari on
i s
responsi bre
for
the
overat
-"not.-' .nt
of the
petroleum
resources
of Malaysia.
Cont ract or
i s
' responsi bl e
f or t he
n*". rra, "#.
exp. l or at i on,
deve' l op- . nt
and pr od; ; i l ;
act i vi t i es,
as
_an
i ndependent
cont r act or
t o
PETRONAS._
Contraci ;;-;;
i ndependbnt
i n the
sense that
i t
{oes
not ,uorf"unaer
the day_to_dar-
di rect i ons
of
. pETRONAS
but devel ops
t h;
necessary
prans
and
activities
at its own iniiiitio".
PETR.NAS
furfirs
its managerial
and
supervisorv
role. through
the
approvals
th"at are required
il;;
1ar i o19
st ages
- "f
Cont r act or , s
pl ans
and
oper at i ons,
such
as t he
appr oval
of t he
development
plans,
and thel,earif
*o.t p.Jg."*,
and budgets.
Tl .:
,p{9
speci fi es
that
PETRONAS
shatl
not
rvi t hhol d
i t s
approval s
unreasonabl y.
Thi s
provision
has to
be-vierveq-
against
th.
;;;ig.o,rrra
that
Contractor.
puts
up all ,,l."r.".y
funds
for the
costl y'
expl orati on,
.dei .l oprrr.rrt
and producti on
act i vi t i es.
Nat ural l y,
Ci nt i ". t o.
expect s
an
adequate
return
on
its
;pi;iirroot-.nt,
expertise
and resource
committea
io nf"Jaysia.
o
o
fl:'rr*:1111.:__-C*ont.3:t9lisdirectryresponsibre
l:,:1:ff ."l.Iii:,li.hti'.;p*;;;r;=,:J:#i.';
H:,::::Y-,:g :lri.
".v
:;
;:d;;#
ff
#,T
:?
S"":t::;:l'^l:ff.r"tio"rlnir,ir-.[r0..',,'iilt?t#
gf
:,:#
il{
il.:ili"r .
t h a t co
"
i i"-*l
JJ ;',".ii"i,i;
:*:11^Oe
in accordance
r"iu,-
rl.;r;
Hil:.#
practi ce.
3. 5
CONSULTATION
AND
A PPRO
VALS
o' rn the
course
of i mprementi ng
the
psc,
numerous
meeti ngs,
di scussi ons
and
.6_,,,,rni .-i ri on,
take
prace
at vari ous
revers
betrveen
' ETR.NAS
and
- 10-
cont r act or -
Regur ar r y
r ecur r i ng
er . ent s ar e
discussed belory.
Each year
Cont ract or
i s requi red t o prepare
a
wol k programme
and budget descri bi ng ai l aspects
of the_proposed
operati ons
i n the fol rJr' i ng
uyear.
The draf t rvork programme
and budgi t
are
submi t t ed
by I st Oct ober f or
pEf RbNAS,
consi derati on
and approval . The programme
and
budget have to be finalized
by lst Dee6:iiii6er.
The operat i on
under t he
psc
are revi erved
quarterl y
by a
j oi nt
commi ttee consi sti ng gf four
represent at i ves
each f rom PETRONAS
and
contractor-
This ope_ration committee, chaired
by
a senior PETRONAS
executive, discuss the n ork
programs
and budgefs and other relevant
matters
coming up in the course of the operation.
Contractor provides
pETRONAS
rvith monthly
progress
reports to enable PETRONAS to monitor
the petroleum
operations.
Special procedures
apply to the procurement
of
equipment,
matgrials,
supplies and the contracting
out of *'ork and services.- Thb procedures
airn
aI
maxi mi zi ng
Mal aysi an part i ci p. at i on
i n t he
petroleum
industry and specify that, rvherever
it is
techni cal l y
and economi cal l y practi cabl e,
orders
shal l be pl aced
rvi th Mal aysi an suppl i ers
and
manufacturers-
o*nership
of all equipment
and
asset s acqui red
by Cont ract or rest s rvi t h
PETRONAS
but contractor has their exclusive
use
for the operations.
PETRONAS
participates
in the tendering
exercise
through
i ts observers
on Contractori s
Maj or
Tender Board and t he Local Tender
panel .
I n
addi ti on, ?try contract i n excess of a speci fi ed l i mi t
(RM
50,000 at present)
requi red fBfnONAS,
separate approval.
3.6 PRODUCTION
SHARING
- OIL
tl
As ment i oned
ear l i er ,
Cont r act or pay, s
al t
expendi t ur es
r equi r ed
f or t he p. t . ot ugm
- 11 -
operations.
production
Th_ese
costs
can be recoyered
f]
and
thi s
works
as fol l orys
under
of any barrel
nroduced,
r0 vo isset
aside
as royarty
to State and
Feder"l
d"..n-.nt,
and up lo
.roc7n
is available
for
contracto.
to'i."over
its costs (cost
oil). The
remaining^
p;
-of
tr,.
U"r.JlJ
sptit
between
pETRoNa-s
;;d-
c"ontractor
in the
ratio
70:30 (profit
oil).
This i, ifj.is.freted
betow
:
3o
The vari ous
oi r enti trement
are estabri sh
on a
quart erl y
basi s.
one aspect
deserves
f urt her
menfion'
contractor
incu.i
its costs in cash
an is
compensated
by lifting
cost
oil. rrre cruae
must
be
valued
to determine
*lhat
vorume
conl""tor
may
lift for each
Ringgit
of costs
incurred.
il; isa
speci fi es
the
basi i pri nci pres
for ti re vatuati on
of
crudeoi l
I
out of the proceeds
from
the
sares of i ts profi t
oi r,
Coi-rti-actoi.
has io make
a number
or pa1,fients.
V
- First
of all,
Contractor
has to pay
corporate
Tax to Malaysian
Governtnent.
rf follorvs
from
the
above
that
contractor
is not
paid:1,:Tl
bll.ir
HTd:
pnrioNAs
tifrs
and
serrs
the
royatty
oil
gl.,i{s
pi"nt
oir. sUil"l.fi
contractor
rifts
and selrs itr iort o' and profit
oir.
Contractor
also
I::,
!o-p-o,
Export
Drty
on anJ,
barrels
sold
outside
Mitivsio.'-
- 12-
In addition, PETRONAS /ras to be paid a
contribution
for
the development of researclt
activities in Malaysia (Research Cess) and
discovery and production bonuses.
Finally, there is the so-called "reifund"
(Supplemental
Payment or wind-fall profit
tax) payable by Contractor to PETRONAS in
respect of Contractor's profrt oil This payment
arnounts to,7Q-{e of the excess of the actual
value of the oil in a quarter over the "Base
Price" specified in tlte PSC. This Base Price is
indexed and at present approxirnates U5$22.9
per barrel (in 1989).
__-
3.7 PSC PROVISIONS FOR GAS
For expl orat i on and product i on of gas, i t i s
generally correct to say that the PSC provisions
concerni ng gas fol l ow cl osel y the pri nci pl es
discussed above for oil.
There are a number of si gni fi cant excepti ons,
which take into account the higher investment
costs of gas projects and the difficulties in
establ i shi ng commerci al outl ets for gas. For
example, the PSC allorvs the Contractor up to 25Vo
of gas produced to recover his cost (this is 20 Vo for
oi l ).
Furthermore, as opposed to the individual liftings
of crude oil, Contractor and PETRONAS sell their
shares i n the gas produced on a
j oi nt
basi s to
agreed outlets.
The PSC makes a di sti ncti on betrveen associ ated
gas (gas produced together rvi th crude oi l ) and
non-associated gas (gas produced independentll' oi
crude oi l ). Thi s di sti ncti on pl ays a rol e i n the
durat i on of t he devel opment and product i on
periods. Associated gas follorvs the same rules as
the crude oil rvith which it is produced.
In the case of non-associ ated gas, the contractor
has a l onger peri od to devel op a gas proj ect.
The
PSC provi des for a hol di ng of up to fi ve years
o
o
o
o
- 13-
following the discovery of a gas field. Within th
five year period,
the contractor has to prepare
and
agree a devel opment pl an wi th PETRONAS. The
gas producti on
faci l i ti es have to be on stream
rvi thi n a subsequent peri od to be agreed rvi th
PETRONAS as part
of the development plan.
Another di fference i s that l onger producti on
periods apply for non-associated gas. For instance,
in the casp^;ef,Ml-Nc, gas may be produced for 20
years from the date of first lifting of LNG.
Gas i s al so requi red at a number of l ocati ons for
petroleum
operations and such requirements take
priority.
Gas that comes free rvith the production
of crude oil, cannot always be utilized or conserved
for future projects and, subject to PETRONAS'
approval, such gas may be vented or flared.
3.8 TRANSFER OF TECHNOLOGY
o The transfer of technology as mentioned in the
PSC has three different aspects,
First of all, the PSC reinforce Contractor,s
policy to
filI
position as much as possible
with
Malaysian staff. However,
for
those positions
for
which no suitable Malaysians
'ca.n
be
recruited, Contractor may employ expatriate
staff, subject to PETRONAS' approval.
Secondly, Contrector has to setup special
development and training prograrns
for
its
Malaysian staff. Such programs require
,PETRONAS'
approval on an annuql basi s.
Finally, Contractor has to institute training
pragroti.s
ior
PETROI{AS stuff to be agreed
on a case by case basis
for
each employee.
Tltis nray include on-the-job training where
possible.
3.9 1985
JV
PSC
o At the ti me of si gni ng the PSC, a number of fi el ds
\ ver e al r eady pr oduci ng
and t hei r 15 year
o
o
- 14-
o
producti on peri ods ended rvel l before the expi ry of
t he PSC. West Lut ong, Bakau, Bhram, Fai rl ey
Baram and Baroni a are f i ve f i el ds i n t he Baram
Delta that fall in this categony.
In March 1985, SSB and PETRONAS CARIGALI
si gned as
j oi nt
cont ract ors a new PSC rvi t h
PETRONAS for the continued operation of the five
fi el ds unti l 1988. Thi s PSC has si nce expi red on
March 31, 1988.
The terms of this
JV PSC lvere generally the same
as those of the OLD PSC. Horvever, under the
JV
PSC, all rights to gas produced from the five fields
\vere vested in the PETRONAS and the contractor
no longer had an entitlement to it except for use in
the petroleum operations.
SSB and CARIGALI also signed.a Joint Operating
Agreement
(JOA)
which set out how the operations
rvoul d be conducted. SSB ryas appoi nted as
operator and rvas responsible for carrying out the
operations in the fields.
A Joi nt Oper at i on Commi t t ee of t hr ee
representatives each from GARIGALI and SSB,
ryas set up to oversee the
joint
activities and to-
monitor the implementation of the
JOA.
CARIGALI funded 50 Vo of the expenditure of the
j oi nt
operati ons. Cost oi l and profi t oi l \vere
divided betryeen the two contractors on a 50:50
basi s. PETRONAS and the Federal and State
Governments mai ntai ned thei r shares i n the
barrel.
CARIGALI seconded experienced staff to the joint
operat i ons as agreed on a case by case basi s.
Trai ni ng programs si mi l ar to those i nsti tuted by
Shel l under the PSC for PETRONAS staff \yere
made available for CARIGALI.
As part of thei r obl i gati ons under the
JV PSC, SSB
and CARIGALI formed a
j oi nt
study team and
carri ed our comprehensi ve techni cal and economi c
studi es on the fi ve fi el ds and i denti fi ed possi bl e
- 15-
I
1[
I
I
future
deveropments
to add some 500 milrion
of reserves
inih.
8"."*;J;-l;".
3.10 BARAM
DELTA
PSC
When the
1985
JV
pSC
expired
in March
3I, 19gg,
ssB voluntar'y^rerinqoisilea
the remaining
four
fields in Baram
Derta
ai a pact<age
aeai
roi rs-y.""
participation-in
a
Joint Venture
comprising
the
9
fields in rhe Baram
Delta.
Witt ,h. ;ig;i";
of the
Baram
Detta
lsgilrese,
with ..tr";p?;iih
enect
Ito_* $p.it
\,
I9!q,
Caritali
became
rhe
fult_
fledged
operator
of the na."io
Delta
oim.ia'r.
SSB and Carigali
each has 50 Vo eeuityin
the
JV.
SSB to fund
some
Z bi l l i on_
rgt i n capi tal ,
to
imgl.eqent
-a
s?:F"tlgrins scheire
@AHDEGG)
and to develop
4'';iiliot,
6"rr.ts or oit *irr"r.
Under
the BARDEGG
scheme
whi ch
i nvol ves
i nst al l at i on
of addi t i onal
-
pf
"t i oi mr,
gas
compression
statioas
and pipeliner,
.iro"i"ila
g",
from five fields
in Bara*
b"rt" rvould
ue gaiherea
at Baroni a
and pi ped
to E_l L i n the
Central
Luconia
to'nreet
ttre
onstror"
d.*ands
of Bintulu
area in addition
to ttre existing
rup-pry-tl"vri.i_
Lutong
areas.
cost oi l cei l i ng
i s r,vo.
IVhi l e
ssB spends
arl
capital,
carigali
and
ssB rvill sharu
"riip..Lti'g
costs at 50:50.
|t9,fit 9,] Jpfit
is 70:30
in favor
of
pETRONAS
as
in the OLD
PSC-.
Speciai
"r."rrg.*ent
have
been
agreed
to in sharinglhe
gas
sales proceeds.
-?.11
IYF
\,V
PSC
based
cn rci,ised
terms
severar
nerv
pscs
have..
been
si gned
i n rggTrgg,
incorporating
the revised
attractive
telrms
announced
b'
the Government
in r9g5.
The
sarie"t reaiu.e
;il;;.;
PSCs are as fbllous:
"a,H0il
ceiling
is set ;t
[A"nd
Cost
Gas ceiting
- t 6-
c
i A: t - . ' : r t i - : \ . . : t . r . - . , . . . . . i . , , s, . - . _- __. .
,
": i
o
-,/
stiait g scale Profit oil split up tb 50 million barrel
product i on.
Fi rst 10, 000 bbyd
-
50: 50. From
.
10,001 to 20,000
bbVd
-
60:40. Above 20,000
bbVd
_
.
70:30, ill in favor of
pETRONAS.
o Prof i t oi l spt i t 70: 30 beyond 50 mi l l i on
bbl s
cumulative production.
i;:-'
.
o
l;f,l.i*'f:;::3'i,1,,:lnl"J,,llt1ffi'1""f"ff:
of PETRONAS.
Cari gal i t o have a m: ni mum of l SVo darri ed
i nterest, rvi th parti ci pati on
opti on on commerci al
discoveries.
ry07o
of expl orat i on
cost s t o be borne by
Contractor, rvith some minimum commitments
on
expenditu res and activities.
Exploration period-S years, Development period-4
years
and Production period-15 years.
Royalty at tIVo as in the OLD PSC.
PSC BASE Price is set at US$25lbbl in 1988.
PSCECONOMICS
The upstream proj ect
eval uati on al ways consi ders
psc
gTIgTiT
to quantify
the financial implication to contractors,
PETRONAS and Government.
The salient fiscal terms for
psc
economics are summarized
belorv.
4.1 ROYALTIES
on OIL and GAS
o For Oi l
- l l %o of Gross Oi l
product i on
(annual
basis is often used)
PETRONAS lrlrs Royatty Oil and pays the
Government in cash-
o
:
o-
4.
Export duty is25Vo of profit barrels.
- 17 -
o
Condensate
and other .NGI^s producea
;r
l
Upstream
are treated
under
Ciude
Oil termi-
For Gas
- l T%o
of Gross
Gas Sal es (e.g.
sal es
to
MLNG)
- For
,gas
utilized
and
flared,
there
rs
ITVo
royalty,
based_-on
fair
markei price.
ifnt, *
usually
a small
amount).
'r.
!.t ,* r 1
ly
roylty
is payable
on, gas
that
is
flared
directly
withoui
nZing
used.o
PETRONAS
pays
the royalgr gas in cash.
ROYALTY ($/yr.)
g{oss
oIL (bbt/yr.)
x
orL PMCE ($/bir)
x 0.r
%S^{4!gs
(mmbtu/yr.)
x
GAS PRICE ($/mmbn1
i
0.1
GIS_USED (mmbtu/yr.)
x
GAS PRICE ($/mminj
x
0.r
4.2
COST RECOVERY
f 6xo
) 6. x O
For
Oi l
- Up to ZTVo
of Gross
Oi l
producti on
to
recover
oil related
expenditures.
For
G-as
-
-up
to ZSVo
of Gross
Gas Sales to recover
gas
related
expenditures.
Cost
\recovery
i s based
on Contract
Area gross
producrion.
(e.g.]
Bxpenses
in
pAi;C;ii
field
is
not restricted
to
pALAs
Gross
oil
prodr.iir",
-n"i
can
be recoyered
from
ccsT
orl BtNK-i;r
the
entire
EPil,II
Contract
area.
cont ract or' s
cost
oi r ent i t rement
i s set t red
on a
quarterl y
basi s.
Cost s i n excess
of Cost
Oi l bank
are
carri ed
forrvard
to the next quarter.
o'
- 18-
contractor
incurs
costs in cash and is compensated
to the next quarter.
o Cost recovery
for gas is similar to oil.
PROFIT OIL or GAS
PROFIT
OIL
-
minimum
of 70Vo, could be higher.
PRoFrr
GAs
-
rninimum
of *svo,courd
bohffier,
PROFIT is shared 20;30 in f,avor of
pETRONAS.
PETRONAS'
entitlement (at
the end of thehay)
:
- minimum
49.0Vo of gross
Oil
production
(70
x 0.7)
- minimum
4S.SVo
of gross
Gas sales (65
x 0-7)
CONTRACTOR's
entitlement :
-
nuximum
4I.0Vo of gross Oil
productiott
( 70x0, 3+20)
- maximum
44.5Vo of gross-Gas
sales
( 65x0. 3+25)
PETRONAS
lifts irs
profit
oil & Royalty oil.
Contractor
lifts its Profit oil and Cost oil.
Unl i ke t he i ndi vi dual
l i f t i ng of crude
oi l ,
PETRONAS
& contractor sell their shares in the
Gas produced
on a
joint
basis to an agreed
outret.
(e.g.
MLNG or PHASE-I
Gas
projecrs).
4.4 EXPORT DUTA'
o Export Duty i s on oi r onry and none for Gas (at
present).
Export Dut y i s payabl e
on any barrel s
sol d
overseas.
- 19-
1:r.:i ...:--
-.-.1:.i .4i r-.-r-....r\
4.3
o
o
o
o
o
o
o
o
!r_n^9.
exported
crude i s not enti rel y
profi t
?57o
dut y
i s
adj ust ed
dor vnwar ds
by
"apporti onrn
en t factor".
Ori gi nal i ntent
Val ue.
: Export
Duty =
ZSVy
of
profit
Contractor' s
oi t,
an
o
PI9TRONAS
pays
duty
on Royalty
and its
profit
oi l .
=
Crude
lifted x
price
(49/59)"x
0.25
CONTRACTOR
pays
duty
on its
profit
and
Cost
oi l .
4.5
=
Crude
Wed
x
price
x (21/41)
x 0.25
PAYMENTS
TO PETRONAS
DISCOVERY
BONUS
-
2.5 miltion
ringgit
before
commencement
of fi rst Commerci al
f,i oducti on
from
each Petroleum
Field.
:|!?Y.CTION
BONUS
- 5 mirrion ringgir
when
a
[o$Io" 1T:1
has reached
or exceeded
7ZS
k.kI_
f_"t:l:h
m;rltigte)_per
q-lla1ter.
This amounts
ro s0
kbbUd produetion
livel.
"
o RESEARCH
cESs
- 0.5 vo of cost o' prus
profit
oil.
o SUPPLEMENTARY
PAYMENT
on
Profit
Oil after
export
duty.
=
0.7 x (profit
Oit
_
Duty) x (Oil
price
_
' BASE
PRICE)
o The BASE
'RICE
is indexe
d, SVo per
]'ear
and ar
prescnt
i s approxi matei y
us$22.v
-p..
rr"i .Lr
(1e8e).
4.6
THE BOTTOM
LIIIE
effecrs
of
pSC
o
contractor' s
Net-back
Before and After :
o
- 20 -
I nt - t ur l
-
.
GROSS PRODUCTION
ROYALTY
COST OtL
PROFIT
OIL
Less : E)PORT
DUTY
Less : CBSS
Less : Supplemental
PAYMENT
NET-BACK
Before
Tax
NET-BACK
After'Tax
PETROLEUM
TNCOME
TAX ACT (1967)
o Ta:r rate is 4SVa of Taxable income.
O TAXABLE
INCOME =
INC)ME.
EXPENSE
-
DEDACTIONS
o PETRONaS
rlicoME =
po
+sp + BoNIls + GESS +
ROYALTY
o CONTRACTOR'S
INCON{E =
pROFIT
OIL + COST
oru
o PETRONAS'S
EXPENSES =
RoyALTy + EXpoRT
DUTY
o coNTRACToR's
EIPENSES =
opEX + sp + BoNus
+ CESS + DUTY
o DEDUCTIONS
ONLY FOR CONTRACTOR,
NONE
PETRONAS
5.1 CAPITALALI.OWA.NCE
@ FrxED CAPEX
-
lavo per year,
straight line basis.
@ OTHER CAPEX (primarl'
recoyery)
-
zTvo +
gvo
per Year.
@ OTHER
CAPEX (secondary
recovery)
-
40 Vo *
6Vo per year.
Before
PSC
100.0
10.0
20.0
70.0
0.0
0.0
0.0
70.0
3s.0
After
PSC
100.0
10. 0
20.0
27.0
4.2
0.2
L.4
15.2
8.4
- 2t -
@ DEVELOPMENT
DRI LLI NG
- t \ Avo \ yri t
l ol
i ntangrbl e (tangi bl e
dri l l i ng costs are treated
as
OTHER CAPEX)
EXPLOfuITION
DRILLING
-
treated on "unit of
production"
basis.
OTHER DEDUCTIONS
: Cost of Capi tal
or
i nterest on borrol ved money i s el i gi bl e for l 00vo
rvrite-off.
:.
i .
@
@
6. FINANCIAL MODEL
Evaluation of oil and Gas properties
are based on cash florvs
obtai ned by forecasti ng producti on
and net revenue
on an
annual basi s. As st at ed earl i er, t he upst ream proj ect
evaluation ahvays considers
pSC
economics to q,r"rriify
the
fi nanci al i mpl ecati ons
to contractors, PETRbNAS
and
Government. someti mes the eval uati on i s done on proj ect
basis, rvithout considering ant
pSC
terms. Depending^on"the
purpose of the evaluation,
a cash flow forecasi \T'i[ G before
income taxes or after income taxes. The necessary input
data
and the computational logrc for the financial modil are briefly
described belorv.
6.1 \'ECESSARY
h?UT
Proj ect l i f e, and PSC product i on peri od
f or
Conractor.
Base
year
or reference year
or evaluation. AII costs
and proce are usual l y expressed i n constant
$ at
the base year.
Contractor' s
equi ty i n Oi l . Condensate and Gas
(usually
up to l00%o).
Oil price (S/bbl)
and Gas price ($/mmbtu),
usually
expressed in constant
$ at the base year.
Pr i ce escal at i on t o cal cul at e f ut ur e pr i ces
i n
nomi nal
$.
PSC BASE PRICE ($/Untl
i n the base l ,ear, bade
pri ce escal ati on i s 5 Vo p.a.
- 22-
Oi l and Gas producti on
forecast; usual l y expressed
in bbVd and mmbtu/d.
Capi t al schedul e f or Fi xed Capex, Ot her Capex
and Dri l l i rrg Costs, usual l y expressed i n constant
g
at the base year,
Fixed Operating Cost schedule
,
usually expressed
in constant $ at the base year.
Yar i abl e Oper at i ng Cost schedul e, usual l y
expressed in constant
$/bbl.
l
Cost escalation to calculate future costs in nominal
$.
For Cost Recovery : Cost Oil Ceiling and Cost Gas
Ceiling, usually depends on the PSC terms.
Petrol eum Income Tax, and Capi tal al l orvance
rules.
6.2 COMPUTATIONALLOGIC
6.2T GENERAL FOR OL, GAS & CONDENSATE
oST BANK
-
OPENT_QALEX
tCOSTclf
-
MAXIMUM COST RECOWRY
N
depending on Cost oil or
ACTUAL COST RECOVERY
=
Lesser of Cost Bank & tr{ax. Cost Recovery
(Any excess Cost Bank is camiedforward to next year)
Compute Capital Allowance using each of the CAPEX
calegories.
-23 -
GROSS REVENUE
=
PRODUCTI O N* 3 65*PRI CE
ROYALTY
=
GROSS REI4ENUE*0.]
=-TffiOSS
REVENUE5'.RA
(FRACTION
can b{,J or
Cost gas ceiling)
compute cost of capital assunring debt / equity ratio and
interest rate.
6.2.2 PRQJACT ECONOMTCS
Calculare roral Export Duty wlich is 2SVo of profit
Oit.
REVENUE
=
GROSS REVENUE
"Ex
NSES
;_d,FE
;
*4iid#a'l#4,4:@-
INCOME
=
REVENUE
-
EXPENSES
,P,F-pU"rqrygNS
- CAPITAL ALLOIYANCE +TCOSI
)
TOr
CAPEX;
\-/
nAXABrE rNcoME =Ncoi;
-
nnnuiTrbls
j
TAXES
=\TAXABLE
INCOME x 0.45 t
i .
- - _' *' "@
. . : _+. - J
. t *
: t ^l al Ar r v 6 t ar f i d /
6.2.3
cAsHFr,ow (Ar) =ilyg!*
TAXES
-,
cApEX
I
--rur
(Using cashflow till PROJECT LIFE, compute IR&
PAYOUT & NPV at different discount rates)
Calculate Export DurT on Crude OiI ltfted
REVENUE
=
PROFIT x 0.7 + SP + CESS + BONUS +
RO"YALTY
G
EXPENSES
=
EXPORT DUTY + ROYALW
INCOME
=REVENUE
-
EXPE'
rS^E'S
DEDaCTIONS
=
None, as Petronas spends nothing ort
Capex.
)
oo t t l
I
- l a 6cl
-D
rcr
-(e (Gl
j o
c o< F.r^tLnr
av
f
at-r-r-.-,
TAXABLE INCOME =
INCOME
- DEDUCTIONS
sl.' ..0,+(
p^
l\' r^rl-?^)r)
TAXES
=TAXABLE
INC,ME x 0.45
('
i[
lnarr- c'tt (vt?2)g4snFLow
(AT) =
INCTME
-
TAXES
COtr'tt-.a,(-Of
[evevrqro
a PP$t
otct(
e'cmqaP/
Sv$e l
actr,ta'{
66
* ecsx;f\
)
)*lz
,
(
zrJ
4
V
OI\AS' ECONOMICS
w