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THE GOVERNMENT OF THE REPUBLIC OF
TRINIDAD AND TOBAGO
Oil & Gas Contracts in the
Upstream Petroleum Sector in
Trinidad and Tobago
EITI Forum, 26th Sept 2011
THE GOVERNMENT OF THE REPUBLIC OF
TRINIDAD AND TOBAGO
A. Oil & Gas Contracts: An EITI PerspecBve B. IntroducBon C. LegislaBve Framework D. Contractual Framework E. Current Fiscal framework F. Access to Resources
i. CompeBBve Bid Rounds ii. Its Benets and ObjecBves
G. Development of Contractual Arrangements H. Fiscal/Tax Arrangements I. Conclusion
Agenda
THE GOVERNMENT OF THE REPUBLIC OF
TRINIDAD AND TOBAGO
qThe enBre chain of managing extracBve industry resources is importantfrom how access to those resources is granted, to monitoring opera5ons, to collec5ng taxes, to sound macroeconomic management and distribu5on of revenues, and to spending resources eec5vely for sustainable growth and poverty reduc5on.
qOne of EITIs major steps is expanding the scope of the iniBaBve to achieve transparency in contracts and licences for producBon and exploraBon.
Oil & Gas Contracts: An EITI PerspecHve
THE GOVERNMENT OF THE REPUBLIC OF
TRINIDAD AND TOBAGO
q Governing the operations and management of upstream oil and gas sector in Trinidad and Tobago are as follows:
qLegislative (Regulatory) Arrangements qContractual /Licensing Arrangements qFiscal Arrangements
Introduction
4
vPetroleum Act and Regulations Chap. 62:01 Regulations effective from 1969 and Act enacted in 1970 to monitor and regulate the oil industry
vPetroleum Production Levy and Subsidy Act Chap. 62:02
Payment made by oil producers to offset subsidy of petroleum products in T&T
vEnvironmental Management Act (EMA) 2000 Responsible for the management of the environment Certificate of Environmental Clearance
vOccupational, Safety and Health Act (OSHA) Monitor and regulate health and safety standards within organizations
Legislative Framework
Exploration and Production Licences - Exploration Licence; E & P (Public Petroleum or Private Petroleum Rights)
Production Sharing Contracts - 1974 Model - 1995 Model (Developed by World Bank) - 2005/6 Taxable Model PSC Model
Farmout Agreements - introduced for the exploration and exploitation of small inactive blocks - full acreage is leased to the farmee
Lease Operatorship Agreements - Introduced for the reactivation of idle wells - Lessor derives an over-riding royalty from the crude oil sold - oil and gas reserves are booked by Lessor
Contractual/Licensing Framework
vPetroleum Taxes Act Chap. 75:04 Petroleum Profits Tax (50% of Chargeable Profits) Supplemental Petroleum Tax
vIncome Tax in Aid of Industry Act Chap. 85:04 Capital Allowances
vUnemployment Levy Act Chap 75:03 (5% of Chargeable Profits before loss offset)
vIncome Tax Act Chap 75:01 Withholding Tax
vGreen Fund Levy (0.1% on gross sales or receipts)
vForeign Investments Act Chap. 70:07
Current Fiscal Framework
THE GOVERNMENT OF THE REPUBLIC OF
TRINIDAD AND TOBAGO
CompeHHve Bid Rounds EvaluaHon Process
& NegoHaHon Process
Of Bids
How Is Access Granted to the Resources
CBO clearly outlines the terms and condiHons under which companies are to submit bids for such categories:
Work Programmes, Share of Prot Petroleum and Technical & Financial Ability The point allocaHon for the respecHve areas Time frame for submission and approvals Model ProducHon Sharing Contract
Prior to the closure of a bid round, Cabinet approves the establishment of the establishment of two commiQees:
Technical CommiQee (Technocrats from the Ministries of Energy, Finance, and Central Tenders Board)
Overview CommiQee (Ministers and Advisors)
9
CompeHHve Bid Order, CBO
Benets of 2010 Bid Process
CompeHHve environment Greater transparency and clarity, so that potenHal
investors will be able to evaluate themselves
Shorter process Hme.
Less complexity. ReducHon of biddable items to two/three with other items being xed in the contract
PrequalicaHon of bidders, so that companies are aware to their status either as PotenHal Operators or not
NominaHon of blocks, so that companies can indicate their areas of interest (Final decisions rest with MEEA)
10
ObjecHves
A. To determine the bidder that presents the best proposal that:
1. Oers an opHmal work programme with respect to 1. Amount and quality of seismic data and other
geophysical data 2. Drilling programme i.e. the number of wells and depth of
each well
2. Maximizes the revenues to the Government via its proposals with respect to GORTTs Share of Prot Petroleum (Crude Oil and Natural Gas)
3. Is technically experienced and nancially equipped to undertake the required exploraHon programmes
FuncHons of Technical CommiQee
Detailed Point AllocaHon system Bids are opened Formal presentaHons of bid proposals are made by
companies ClaricaHon on some maQers, if required, is requested of
bidders Evaluate and analyze bids Final Report prepared and sent to Overview CommiQee
FuncHons of Overview CommiQee
Overview CommiWee considers the Technical EvaluaBons Report and makes recommendaBons
Its recommendaBons together with the report from the Technical CommiWee are forwarded to Cabinet
FuncHons of Cabinet
Final decisions with respect to successful or unsuccessful bidders are taken by Cabinet.
Ministry of Energy noBes companies of their status, whether successful, unsuccessful or given an opportunity to improve its bid oer to GORTT
Development of Petroleum Contractual Arrangements
In Trinidad and Tobago
15
History of Contractual/Licensing Regime
Concession / (Tax/Royalty) / E&P Type Agreement The concession agreement is the direct descendent, in the international arena, of the original Drake Lease in Pennsylvania. It is the first type of contract used internationally and still persists today. In the early concessions, the contractor undertakes exploration, drilling and development at its sole risk and cost Title to the mineral rights is held by the contractor under a concessionary system Revenue to the host government is paid via rentals, taxes and royalties seldom in oil Lost popularity as nationalism grew or countries sought to take charge of their natural resources
THE GOVERNMENT OF THE REPUBLIC OF
TRINIDAD AND TOBAGO
History of the Production Sharing Contract
q In 1960, Indonesia Law No. 44 promulgated the Production Sharing Contract (PSC). The first PSC was signed in Indonesia with Mobil in 1966. Amoco followed shortly after in Egypt.
q PSCs differ from concessions in that the state retains title to the minerals throughout exploration development and production.
q The company contracts with the government for a share of production of oil and gas, as payment for costs incurred, a return on its investment and/or services provided
q PSCs vary widely as these are negotiated between the companies and
governments.
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Oil Mining Leases / E&P Licences Limited or no management by host governments Royalties Depreciation Consolidation Long concession periods (Option to renew for further 30 years) Large contract areas granted No relinquishment
1900 1970s
E&P Licences v Petroleum Profits Taxes Act v Supplemental Petroleum Taxes v Petroleum Production Levy &
Subsidy Act v Unemployment Levy Act
amended (oil & gas companies) v Royalties v Capital Allowances v Consolidation v Fiscal Incentives (Downstream
Plants) v No relinquishment
PSCs vFirst signed in 1974 vNo Cost Recovery v Govt took % share based
on production v Ring-fenced vContractors Taxes paid out
of Govt Share
1970s Mid 1990s
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1995 PSC Model
v Cost Recovery introduced v GORTT Shares in Prot
Petroleum v Contractors taxes paid out of
GORTTs Share v Minimum Work ObligaHons v Holding Fee v Clear Provisions for Natural Gas v Financial ObligaHons- Signature
Bonus, R&D, Training, Technical Equipment
vNew Model E&P Licences- 2005
vRelinquishment Provisions vMinimum Work
Programmes vTighter Abandonment
Financing Provision v Local Content Policy v Financial ObligaHons and
Bonuses.
Mid 1990s Mid 2000s
20
2005/6 Taxable PSC
vCost Recovery vGORTT Shares in Profit Petroleum oil (in lieu of royalty, SPT, oil impost, Petroleum Levy) v Contractor pays taxes (PPT, UL, & GF) v Consolidation 2 regimes: land/shallow marine and deepwater v Assignment/Transfer Fees v Financial Obligations v Windfall Profit Feature introduced v 40% uplift for exploration expenses in deep water projects
Mid 1990s Mid 2000s
THE GOVERNMENT OF THE REPUBLIC OF
TRINIDAD AND TOBAGO
2010 -2011 for PSCs
qConvenHonal styled PSCs, for Shallow (< 400 m), Average (400
THE GOVERNMENT OF THE REPUBLIC OF
TRINIDAD AND TOBAGO
q EecHve management, monitoring and regulatory control of the operaHons of these licences and PSCs are undertaken by the MEEA in accordance with the respecHve terms and condiHons
Management of Licences and PSCs
Fiscal/Tax Arrangements
24
THE GOVERNMENT OF THE REPUBLIC OF
TRINIDAD AND TOBAGO
Fiscal Features qAll companies operating under E&P as well as
PSCs are required to file their tax returns and meet all fiscal obligations in respect of SPT, PPT UL, Royalty, Green Fund Levy and Withholding Tax.
qIn the case of the majority of PSCs, the
companies tax obligations are met from GORTTs Share of Profit Petroleum.
25
THE GOVERNMENT OF THE REPUBLIC OF
TRINIDAD AND TOBAGO
Taxes/Levies Administered by Ministry of Finance
26
Taxes applicableCrude Income
Gas Income Rate
Supplemental Petroleum Tax Sliding ScalePetroleum Profits Tax 50% / 35%Unemployment Levy 5%Green Fund Levy 0.10%Withholding Tax 5%
THE GOVERNMENT OF THE REPUBLIC OF
TRINIDAD AND TOBAGO Taxes/Levies Administered
by Ministry of Energy
27
Taxes applicableCrude Income
Gas Income Rate
Petroleum ImpostPetroleum Levy 4%Royalty - Crude 10% - 12.5%Royalty - Gas (Current) 0% - 15%Royalty - Gas (New) 10% - 15%
Basic Structure
Gross Revenues: Total Revenues Less
Costs: (As dened under the Accoun0ng Procedure of the PSC)
(OperaBng, ExploraBon, DepreciaBon AdministraBve costs, Unrecovered costs (C/F))
(Costs limited as % of Revenues)
Profit Petroleum
Gross Revenues: Total Revenues Less
Costs: (As dened under the PTA and Income In Aid)
(OperaBng, SPT, Royalty, ExploraBon, Levy, Depr, AdministraBve costs, Unrecovered costs (C/F))
Net Taxable Profits
28
PPT &UL 55%
45% As per Prot Share Matrix
PSC Concessionary
GORTT Take
Gross Take from PSCs
Share of Profit
Petroleum Financial Obligations Withholding Tax*
* (Where excluded in some PSCs)
Gross Take from Concessionary Arrangements
Royalty SPT UL Petroleum Levy Oil Impost Green Fund Levy Withholding Taxes
29
< = >
THE GOVERNMENT OF THE REPUBLIC OF
TRINIDAD AND TOBAGO
q All scal arrangements of companies are audited for accuracy, compliance and revenue generaBon:
q In the case of E&P operaBons this is undertaken by the Ministry of Finance
qIn the case of PSCs, this is undertaken by the Audit Unit within the Ministry of Energy & Energy Aairs
q The Ministry of Finance through, the Permanent
Petroleum Pricing CommiWee can review and determine fair market values in respect of non-arms length transacBons.
Audit Provisions
THE GOVERNMENT OF THE REPUBLIC OF
TRINIDAD AND TOBAGO
qOil & Gas contracts for the upstream sector are managed under legislaBve, contractual and scal frameworks that provide for transparency and clarity.
qConBnuous review and revision of these frameworks
ensure that current and industry best pracBces are adopted to improve the overall management and sustainability of the sector
Conclusion
THE GOVERNMENT OF THE REPUBLIC OF
TRINIDAD AND TOBAGO
THANK YOU
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