Globally, there are two types of petroleum fiscal system; the concessionary and the contractual petroleum fiscal system. The main differences between the two types of petroleum fiscal system is the ownership of the resources and some distinct fiscal terms. The contractual petroleum fiscal system specifies a cost recovery option and profit oil split unlike the concessionary petroleum fiscal system that allows the contractor to recoup his capital before payment of tax. This tends to increase the risk associated with the host government revenue as investment in the production of hydrocarbon is filled with uncertainties. There is a need to redesign the concessionary petroleum fiscal to enable it reduce the risk associated with the host government revenue by making the host government to earn revenue early from petroleum investment. This research therefore evaluated a hybrid petroleum fiscal system for investment in the exploration and production of hydrocarbon. The concessionary petroleum fiscal system was adjusted to include a cost recovery option. Petroleum economic model for investment in a typical onshore oil field was built using spreadsheet modelling technique with the fiscal terms in the hybrid petroleum fiscal system embedded in it. The cost recovery option and oil price in the model were varied between 0-100% and $20-$100 per barrel. The NCF, IRR and payout period of the investment were determined. It was observed that the lower the cost recovery option, the higher the host government revenue. From the profitability analysis of the investment in the hybrid petroleum fiscal system, it was observed that when the price of oil was $100/bbl, the NCF of the host government was $9146 and $8426.3 for 0% and 80% cost recovery option. The lower the cost recovery option, the higher the payout period and the lower the internal rate of return. Though lower cost recovery increased the host government revenue more but it may make the hybrid petroleum fiscal system unattractive for investment in periods of low oil price. Hence a higher cost recovery option was recommended for the use of this type of petroleum fiscal system.

1. Introduction The Oil Industry has been witnessing many rapid developments recently. A tough competition is arising between Super Majors and National Oil Companies (NOC). Eight of the largest 10 E&P in the world are NOCs. Small Independent producers, engaged primarily in production development found a niche market. Presenting almost no competition to NOC or IOC, they offer a solution for many assets, which are of no current interest to major oil companies. The paper/presentation will focus on the characteristics of theses small oil companies, their success factors, and the context which led to their rapid development. Both the advantages and disadvantages from different points of view will be equally presented. The challenges facing these companies as well as the opportunities ahead are quite unique, given their size and capacity. In pursuit of maximizing their interest, Governments as well as Service Providers are encouraged to apply a different approach when addressing these companies. Within the Industry norms, there are fresh concepts and ideas which will lead to a more tailored win-win approach. Contractual arrangement especially designed for mature or developed assets and integrated service packages addressing missing resources and expertise of these companies, are among some of the solutions, which the Oil & Gas industry can offer to small independent producers. The paper will first give an overview of the current status of the Oil & Gas industry, and briefly examine the position of Major Oil Companies (MOC), National Oil Companies NOC, as well as Integrated Service Companies (ISC). The main part will deal with small and medium size Independent Oil producers (IO), their characteristic, their emerging role in the industry and how they are responding to the context explained above. Please note that large independent oil producers are not object of the analysis below. As for the limitations pursuant to SPE Guidelines, no commercial entity is mentioned or identified. 2. Oil & Gas Industry trends The Exploration and Production (E&P) industry is expected to witness substantial growth through the year 2020. Conservative scenarios estimate growth not to be less than 1.5% per year with the most probable estimates being more than 2% per year. Furthermore, average prices are expected to rise at a higher rate over the next 10–15 years than over the past 10–15 years, providing the opportunity for substantially more revenues per barrel of oil equivalent produced. As the percentage of oil and gas production from the large resource-holding countries is expected to grow, greater price volatility and increased competition for new projects will ensure continued favorable terms for resource holders. Reserve and Production lending has enabled National Oil Companies (NOC) to raise capital and either compete directly with Major Oil Companies (MOC) or partner with Integrated service companies (ISC) to do much more work on a fee-per-service basis. So for all but the most technically sophisticated, risky, or capital-intensive project types, the global oil service industry will provide an increasingly competitive and viable alternative to MOC. 2.1 Major Oil Companies: Sluggish Growth Ahead Over the past 25 years, almost every MOC has created shareholder value. But while past valuations supported long-term growth expectations of up to 4% per year, current reserve estimates no longer support this kind of growth. Increased competition from NOC is squeezing MOC returns and decreasing their share of available new reserves.

Introduction Production Sharing agreements are the predominant type of contractual arrangement, governing the relation between governments and foreign oil companies throughout the exploration and development phase. PSA were first introduced in Indonesia in 1966 and since then varied in some elements but witnessed no major development. The paper/presentation will argue that in the current context of sustained oil prices, need of increasing production, depletion of reservoirs, and the remaining reserves, Governments and Foreign Oil companies need to revisit some of the basic elements of the PSAs in order to address the above context adequately. The rigidness of the current structure of PSA does not allow government and E&P companies to adapt their strategies throughout the development phase. To overcome some of the disadvantages of PSAs, governments can introduce dynamic variables such as: Dynamic profit share linked to Crude prices. Flexible Cost Recovery systems Incentive system based on key performance indicators The paper/presentation will argue that there this much room for a "dynamic win-win" based approach, which will accommodate the interest of all stake holders. By no means, does the paper claim to provide a comprehensive analysis of PSA. It merely suggests some reform concepts for the sole purpose to trigger a constructive debate. To gauge the actual impact of such changes on all parties, extensive economic modelling and analysis are needed, which are beyond the scope of this paper Another limitation is that the subject analysis is narrowed to the Egyptian type of PSA, which may differ slightly from the original Indonesian type.

Abstract This paper examines the wide variety of international agreements that are currently used by host governments when granting rights to explore for, develop, produce and market hydrocarbons. The variation in fiscal terms found in these agreements covers a broad spectrum. In addition, their structures are often very complex making comparison of alternative project opportunities difficult. The key differences in the agreements and approaches that are commonly used to compare different fiscal regimes are discussed in detail. A case example with sensitivity analysis is used to illustrate the techniques used to model and perform economic evaluations of specific agreement types and terms. Commonly used definitions and accepted practice for the determination and classification of hydrocarbon volumes are presented. Host and home government regulations that govern and establish the criteria for external reporting of reserves and related financial information are also discussed in contrast with internal reporting needs for technical and business planning purposes. Introduction Production and revenue sharing contracts cover a broad spectrum of fiscal terms implemented by host countries to meet their sovereign needs and economic goals. By their very nature, these types of agreements contain terms that recognize the importance of investment recovery, and a reasonable rate of return by the contracting party, as well as ensuring income for national benefit from the resource being monitized. The purpose of this paper is not to provide a comprehensive analysis of all of the types for international agreements or all of the parameters that need to be considered when they are evaluated. The purpose is to provide a general framework that describes the key agreement features and factors that need to be considered during economic evaluations throughout the various stages of a project's life cycle. Since agreement terms typically respond to changes in production rates, investment levels, product prices, and contractor profit, a comprehensive project economic evaluation model is typically used for prospect development, negotiation of fiscal terms, comparison of alternative investments and determination of contractor / host production or revenue splits throughout a project's life. Agreements and Contracts Agreements and contracts cover a wide spectrum of fiscal and contractual terms established by host countries but contain many common elements including bonus payments, royalties, cost recovery / profit splits and taxes. Figure 1 shows a generic fiscal model that depicts the key production and revenue streams which will be used throughout this paper. The following discussion of agreement types is based on the classification system template proposed by Johnston 1 . Key aspects of each type of agreement are summarized as follows: Concessions, Mineral Leases, and Permits Historically, leases and concessions have been the most commonly used agreements between oil companies and governments or mineral owners. In such agreements, the host government or mineral owner grants the producing company the right to explore for, develop, produce, transport, and market hydrocarbons or minerals within a fixed area for a specific amount of time. The production and sale of hydrocarbons from the concession is then subject to rentals, royalties, bonuses, and taxes. Under these types of agreements 2 , the company typically bears all risks and costs for exploration, development, and production and generally would hold title to all resources that will be produced while the agreement is in effect. Reserves consistent with the net working interest after deduction of any royalties owned by others are typically reported by the contractor.

Abstract Concessions were predominantly used up until the late 1960s, when Production Sharing Agreements- or also called Production Sharing Contracts (PSA or PSC) - came into existence. They provide an alternative to concessionary systems for those foreign countries, whose constitutions stipulate that all mineral rights lie with the state, but who do not wish to exploit their hydrocarbon resource base on their own. Regulations, which govern the external oil and gas reserves reporting, give a high degree of latitude as to how a company interprets and applies those rules to reserve bookings. From a financial point of view, PSAs and concessions are quite similar; they are distinctly different though from a philosophical point of view. The concession owner holds title to the hydrocarbons in place, whereas in the PSAs the entitlement is not transferred to the contracting party. But it is the entitlement to reserves, which ultimately provides the right to book reserves. For concessions, the reserve booking procedure is very clear, since the concession owner owns the mineral rights, whereas in case of PSAs the situation gets much more complicated. This paper explores different types of such agreements. It further discusses the question, whether reserve bookings for internal and external reporting purposes are permissible under certain kinds of arrangements and what, if any, volumes can be booked. Two methods are applied: The working interest method and the economic interest method. The hazard in using the working interest method, lies in the fact, that the government production entitlement would be treated as a tax expense from the contractor's point of view. But the host government or their representing oil institution will book their share of profit oil/gas as well, leading to reported gross reserves exceeding those ultimately produced. It would be preferable if oil companies strive to apply the economic method uniformly. The economic interest represents the actual barrel entitlement and thus is comparable to reserve numbers from concessions or leases. As the investment community places great significance on reported volumes to gauge the company's financial strength and future growth potential, it would be desirable to achieve a higher degree of consistency in reserve booking industry-wide. Internally the company will profit by improving benchmarking in portfolio management decisions.

Abstract During the last few years, several U.S. companies have made the decision to expand internationally. This decision is the result of several factors, including the large acreage positions and reserve potential that exist overseas, coupled with foreign governments that are offering favorable investment environments in order to attract new capital and technology. International expansion offers unique challenges and opportunities. This paper is a case history of the international growth of a U.S. independent, Maxus Energy Corporation, from 1987 to 1992. It examines the key international exploration and production challenges that Maxus faced in 1987, looks at problems faced and accomplishments made in subsequent years, and identifies challenges for the future. Introduction By 1987, Diamond Shamrock Corporation spun off essentially all of its assets except for upstream oil and gas properties, becoming a pure exploration and production company and in the process renaming itself Maxus Energy Corporation. As part of this restructuring, Maxus laid out its strategy for future growth. This paper focuses on the international portion of that strategy, Maxus' international strategy can be divided into two segments — exploration and operations. The exploration strategy was to 1) use a portfolio approach, 2) adopt a staged approach regarding capital expenditures, 3) mostly utilize internally-generated ideas, 4) generally operate, 5) keep a significant interest, and 6) use an open approach with host governments. The operations strategy was to concentrate the existing assets and maximize the value of the remaining assets. Discussion In 1987, Maxus, like other independents, found itself in an environment where capital was scarce. Oil prices had dropped significantly in 1986. Yet despite this, international bid rounds were still fairly competitive and expensive. To compete in this environment, Maxus decided it needed to generate its own ideas and towards that goal, began to assemble a team of top-notch international explorationists. P. 377^

Ait-Laoussine, Nordine, International Energy Development Corporation Miller, Norman W., Consultant to International Energy Development Corporation Parra, Francisco, Parra, Francisco, International Energy Development Corporation Abstract Developing countries outside the OPEC Area are faced today with an urgent need to develop their indigenous energy resources and, in particular, their hydrocarbons. These are of key importance to net oil importers and small net exporters alike if their economic development is to continue at a satisfactory pace. In the past, governments have concentrated on structuring their exploration and production agreements in such a way as to secure for themselves most of the economic rent or windfall profits that result from large oil discoveries, and this has meant that exploration for the smaller fields has been seriously inhibited. There is a need now to structure E+P agreements so that they combine the governments' goal of capturing the economic rent on large discoveries with encouragement to explore for and develop the smaller fields which, in many countries, would make a significant contribution to the energy economy. The present paper puts forward a new framework agreement to accomplish puts forward a new framework agreement to accomplish these twin goals in a practical manner. It recognizes and builds into the agreement the fundamental distinction between the exploratory and development phase and ties the contractors' reward to the financial rather than the physical performance of the field. Introduction The global energy situation has changed signifcantly in the past decade, as the world has moved from a period of abundant low-priced oil supplies to a era of higher cost oil, foreseeable limits to supplies and a public which is much more conscious of the value of its energy resources. While the industrialized countries are managing to cope reasonably well with this changing energy scene, many of the developing countries are encountering severe difficulties in financing the high costs of imported oil needed for their continued development. Many of the developing countries facing this current energy and financial dilemma have the potential for discovery and production of new supplies of oil and gas within their borders, which could enable them to reduce their dependence on imported high-priced oil and may even enable a few countries to export oil in the future. Despite this acknowledged potential, however, the current effort to find and develop these resources falls far short of what is needed, especially when compared to the level of drilling activities in the developed countries, particularly the United States. NEED FOR NEW FISCAL CONCEPT The International Energy Development Corporation (IEDC) believes that one of the factors which could help stimulate additional exploration in some of the developing countries is the improvement of revenue sharing terms between the Governments of these countries and the foreign oil companies needed to carry out exploration activities. The forms of these revenue sharing agreements have become more complex and diverse over the years, as Governments have become increasingly concerned with improving the efficiency of the terms offered in order to better protect their national economic interests in the exploitation of these resources. Numerous types of taxation, production sharing and risk contract terms are being applied in many countries today. Often, however, the terms offered by a country do not sufficiently accommodate the geological and operating uncertainties and the differing financial perspectives of the foreign companies. In response to this need for a new fiscal concept, IEDC is proposing a new approach to revenue sharing between foreign companies and Host Governments. This new regime is designed to respond to the actual financial performance attained and results experienced by a foreign company in exploring for and developing new supplies of oil and gas. It is also designed to facilitate the Host Government's use of available international funds to assist in financing its participation and investment n the development of new participation and investment n the development of new petroleum supplies. petroleum supplies.