Abstract
Mexico's new open market, Brazil's pre-salt discoveries, Argentina's unconventional potential and Colombia's unexplored offshore areas among other examples make Latin America a focal point to global upstream investors. However, in the current low oil price environment resources have become scarce and geological prospectivity is not the only factor to attract investment. Countries are therefore fiercily competing to secure foreign investment and fiscal terms play a key role. This study presents a comprehensive analysis of current fiscal regimes of oil and gas producing countries in the region.
Typical upstream onshore, offshore, heavy oil and unconventional projects are evaluated applying the fiscal terms of each particular country for low, mid and high scenarios (i.e. P90, P50, P10) under identical conditions. Economic indicators such as net present value, profitability index and rate of return for both contractor and government are calculated. Sensitivy analysis is then conducted for low and high price and investment ranges. Government take is calculated depending on the corresponding fiscal system (i.e. Royalty Tax, Profit Sharing Contract and Service Contract) and broken down by its compounded elements (i.e. taxes, royalties, profit oil).
Based on the analysis described above, fiscal regimes of producing countries in the region are compared and ranked by Contractor and Government take. Their behaviour is understood under low and high price and cost conditions in order to estimate the share of the potential upside/downside on extreme cases and subsequently indentify which regimes are more competitive from the fiscal point of view to investors. Finally, elements like fiscal stability and state participation are also incorporated into the analysis.
Recent changes in fiscal terms implemented by governments to either protect their finances against the oil price drop, attract new investors or encourage new developments (i.e. offshore and unconventional exploration) are captured in the present study. Frontier regions such as Uruguay and the Falkland Islands are also included in the analysis.
