Model Production Sharing Contract And Competitive Bidding Rounds, 2006

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Model Production Sharing Contract And Competitive Bidding Rounds, 2006 

  Shallow and Deep Onshore/Nearshore, Shallow Marine and

Trinidad Deep Atlantic 

November 01, 2006

 
 
 
 
 

2  

Agenda 

Framework for Production Sharing Contracts (PSCs) Policy Objectives  
Contract Terms Re-opener Clause Availability of supplies for domestic and export markets Assignment & Transfer Provision Abandonment Profit Sharing Tables  
Fiscal Regime for Taxable PSCs Clarification of CBO Terms  
 
 
 
 

3  

Policy Objectives 

Encourage greater exploration and development activities  
Encourage diversification of investors

Ensure availability of supplies for domestic and export markets  
Ensure new revenue stream for future generations  

Contract Terms

 

Re-opener Provision

 
 
 
 
 

6  

Re-opener Provision 
 

Specifies the period for the re-opener Five years prior to the termination of the first term of the contract  Provides a trigger for the re-opener to be invoked The criteria to be used in determining performance, and The lower and upper ends of the range of expectation  
 

     

 
 
 
 
 

7  

Re-opener Provision, cont00 

Proposed Trigger: Contract Profit Ratio = Cumulative value of the Contractor00 profit oil and gas / Cumulative value of Cost oil and Cost Gas Limits:  1 < Ratio < 3.5 If less than 1, then Contractor could request a re-opening of PSC If greater than 3.5, then GORTT could request a re-opening of PSC  

Availability of Supplies for Domestic and Export  Markets

 
 
 
 
 

9  

Availability of Supplies 

Ensure that supplies of natural gas are available for the Domestic Market  
Option for GORTT to advise of its preferred marketing arrangements  
Option for GORTT to develop separate marketing arrangements for its Share  
Requirement for Contractor to include an analysis of marketing options, including supplies to existing or potential projects in the internal market.  

Assignment & Transfer Provision

 
 
 
 
 

11  

Assignment &Transfer Provision 
 

Assignments and transfers to be treated differently under the PSC. Valuations of these transactions to be determined by independent consultant and/or companies00submissions Rates are set on a sliding scale  For every dollar of the first US$100 million: 1%  For every dollar of the next US$100 million: 1.5%  For every dollar thereafter: 2%  

Abandonment Provision

 
 
 
 
 

13  

Abandonment Provision 
 
 
 

Escrow account to be established from the date of first production  
Amounts paid into escrow account are eligible for Cost Recovery. For tax purposes Abandonment Costs only expensed when incurred  

Profit Sharing Tables

 
 
 
 
 

15  

Profit Sharing Tables 

Price Class D was amended to reflect changing pricing environment

 
 
 
 
 

16  

Profit Sharing Tables 

Apply a price-based formula over nominal prices of $40/bbl for oil and $4.00/mscf for gas as follows:

                BR + 80% [P 00S$ 40) /P] (1-BR)  

                where:  BR refers to the Base Rates set out in Price Class D, and

                      P is the Crude Oil price. 
 

Illustrative Purposes Only

Example: Assume Oil Price of $50/bbl and  Base Rate of 50% at column D 

Total GORTT Share       =  50% + 80% { (US$50.00 - US$40.00) / US$50.00)} (1-50%)

                           =  50% + 80% (20%) (50%)

                           =  50% + 8%

                           =  58% 

 

Fiscal Regime  
For 
Taxable PSCs

 
 
 
 
 

18  

History of PSC Models 

1974 PSC:

          - No Cost Recovery

          - Contractor00 taxes paid out of GORTT00 share

1996 PSC: Cost Recovery introduced GORTT shares in profit oil Contractor00 taxes paid out of GORTT00 share 2006 PSC: (Tax-based) GORTT shares in profit oil Contractor pays taxes (PPT, UL& GF) based on his

       gross revenue (share of  profit oil and cost oil) 

 
 
 
 
 

19  

1996 PSC Tax Framework  
 

Contractor00 Gross Income 

PRODUCTION 

COST OIL 

PROFIT OIL 

Contractor00 Profit

Share 

Government00 Profit

Share

 
 
 
 
 

20  

Tax Take 1996 PSC Model 

Contractor00

Take 

Operating Expen. 

Capital Allow. 

Taxable Income

(After Tax Income) 45% 

Gross up 55%

(Taxes) 

Ministry of Energy 

deduct 

deduct

 
 
 
 
 

21  

Concerns with 1996 PSC Model 

Gross Up SPT  
Time lags Payments to MEEI and receipts from IRD  
 
 
 
 

22  

2006 PSC Tax Model 

Cost Oil 

Contractor00 Profit Oil 

Government00 Profit Oil 

In Lieu of Royalty, SPT, Oil Impost, Petroleum Levy 

Gross Income

 
 
 
 
 

23  

Payments and Taxes 

The Government00 share of petroleum shall be in lieu of Supplemental Petroleum Tax, Petroleum Impost, Royalty, and Petroleum Production Levy  
Contractor shall pay Petroleum Profits Tax, Unemployment Levy, Green Fund Levy and Withholding Tax.  
Gross income of Contractor in respect of any year of income shall be calculated as the total of its share of Profit Petroleum plus Cost Recovery Petroleum  
 
 
 
 

24  

Tax Highlights 

    Applicable to Taxable PSCs:

40% uplift for exploration expenses in deep water projects No requirement to file SPT Return Consolidation features (New) Taxes paid directly to Inland Revenue  
 
 
 
 

25  

Consolidation 

Consolidation in separate groups 00Taxable PSCs  
 

Land/Shallow

Marine 

Deep-water

 
 
 
 
 

26  

Consolidation  

Consolidation be allowed on the following basis:

One regime for land/shallow marine taxable PSCs  
Second regime for deepwater taxable PSCs (not to be consolidated with land/shallow marine PSCs.)  
E&P regime will continue to be consolidated separately  
Old PSC regime will remain ring-fenced  
 
 
 
 

27  

Benefits of New Regime 

Easy to administer Transparent & equitably applied Receipts are issued on a timely basis Gross-up problems resolved  
 
 
 
 

28  
 
 

Gross income.  

Less:

Revenue expenditure wholly and exclusively incurred in the production of the income  
Capital allowances as per The Income Tax (In-Aid of Industry ) Act. Other Special Allowances as per Petroleum Taxes Act.  
Rate  -  50 %  
 
 
 

Computation Of Petroleum Profits  Tax

 
 
 
 
 

29  

PART I 00 INDUSTRIAL BUILDINGS

Initial Allowance             10 %      Annual Allowance                  5 % (Straight Line)

PART II 00 PLANT & MACHINERY 00E & P

Initial Allowance   20 %      Year 1 Annual Allowance                  20 %       Year 1-5

                PART III (INTANGIBLES) 

     Initial Allowance   10 %      Year 1

Annual Allowance                   20 %  

          - Exploration (Year 1)

          - Development (Year 2 or from commencement of commercial

            production) 
 

CAPITAL ALLOWANCES

 
 
 
 
 

30  

Dry Holes (Consolidation) Workovers & Qualifying Sidetracks Heavy Oil Allowance Production Bonus Signature Bonus  

SPECIAL ALLOWANCES / DEDUCTIONS

 
 
 
 
 

31  
 

Rate    5 %  
Applied to chargeable profits before loss

    relief plus any exempt  income. 
 

UNEMPLOYMENT  LEVY

 
 
 
 
 

32  
 
 

Rate    0.1 %  of Gross Sales/Receipts  
Computed on the Gross Sales/Receipts for the financial year (i.e. Jan to Dec)  
 

GREEN FUND LEVY

 

Clarification of Competitive Bidding Round

 
 
 
 
 

34  

Area Offered Under CBO 2006

 
 
 
 
 

35  

Competitive Bidding 

The Legal Notices, No. 9 and No. 95 of 2006  invited bids for several blocks, onshore/nearshore shallow marine and deep water. The CBO specifies all the terms and conditions under which a bid is to be submitted PSC form issued in October does not supercede the CBO To prepare a compliant bid the CBO, its amendments and the PSC must be  read together.  
 
 
 
 

36  

CBO Clarifications: Section 4(1) 

Closing Dates:

Onshore/Nearshore, Shallow Marine 00November 30th 2006 Deepwater 00December 15th 2006  
 
 
 
 

37  

CBO Clarifications: Section 4(3) 

Separate bids must be submitted for each block. A composite proposal comprising separate bids for onshore and nearshore blocks required The bid fee shall be in respect of each block  
 
 
 
 

38  

CBO Clarifications: Section 8 

Legal Identity Technical Capacity

Forms A&B

MEEI reviews the economic assumptions and parameters on which the bid proposal is made.  MEEI expects the potential bidder to provide its base case scenario on which the company00 expectation is based.  
 
 
 
 

39  

CBO Clarifications: Section 10 

Companies should indicate in the bid that they intend to maximise the use of local content in their work programme Details on the company00 strategy to maximise local content would provide a clear demonstration of intent. There are organisations in T&T from which data on local services can be sourced.  
 
 
 
 

40  

CBO Clarifications: Section 11 

Specifies the MWO 00bids must conform to these requirements. With respect to 11(1)(b)(i), there must be a proposal for drilling on each block With respect to 11(1)(c), the expenditure commitment is expected to be a realistic costing of the work programme It is a guarantee for instances of non- performance of the work programme  
 
 
 
 

41  

CBO Clarifications: Section 11 

Section11(1)(e), (f) and(g)

Petrotrin is to be carried in the obligatory exploration phase only

Section 11 (4) Weighting Scale

Bids are to be evaluated on the basis of the PSCs and the Weighting Scale Assigns relative weight to the various elements to be evaluated. Values reflect the importance placed on each item  
 
 
 
 

42  

  (1)EXPLORATION PROGRAMME  35

   

        Obligatory Programme

   

        Work Programme  20

   

        Expenditure Commitment 10

   

        Optional Programme

   

        Work Programme  4

   

        Expenditure Commitment  1

   

   

  (2)SHARING OF PRODUCTION  35

   

  (3)BONUSES/CONTRIBUTIONS  30

        Production Independent Bonuses/Contributions 25

   

        Production Related Bonuses/Contributions   5 
 

  TOTAL:        100 
 

Weighting Scale

 

THANK YOU

 

Dr. Van Meurs agreed with the basic features of the proposed Fiscal Regime but wanted to modify the consolidation feature.

On the contract itself, he had issues with the above terms as expressed in the contract. The discussions were centered on the above items with modifications proposed.

 

He first addressed the policy objectives of the government.

 

Three scenarios .

1996 model 00gov00 receives a share of profit oil from which it pays taxes on behalf of contractor and holds him harmless for future changes in the tax regime 2006 model - gov00 receives a share of profit oil in lieu of all taxes (contractor is not affected by any tax regime) Proposed Tax-based PSC 00gov00 receives a share of profit oil in lieu of SPT, Royalty,oil impost and production levy but the contractor would be liable to Petroleum profits tax and unemployment levy on on his share of profit oil and cost oil less allowable expenses  

Licences would be consolidated as a group re: exploration, development and production  expenses(present arrangement) and the PSC00 would now be consolidated as a group with respect  to exploration, development and production  expenses.

All new PSCs will be taxed-base.

Income from the land/shallow tax-based PSC00 will be used deduct deepwater PSc00 and vice versa

 

Income includes disposal of Crude Oil, Natural Gas, Other Income incidental to production business.

Expense 00provision of the ITA 00Section 10,11,12 applies.

 

Changes to Legislation wrt this area 00FYA has been removed and AA  is granted from the year expenditure was incurred (1st year).

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