GlobalData’s latest thematic report has identified the key aspects of national tax and fiscal regimes affecting value in the oil and gas industry.

The fiscal regimes adopted by nation-states can attract or deter new investment, determine whether new projects can move forward and dictate company cash flows.

The design of fiscal regimes, particularly in terms of their progressivity, and the incorporation of elements such as windfall taxes and cost oil, can mean that the level of fiscal take depends significantly on prevailing prices and costs.

The attractiveness of a fiscal regime

Given the cyclical nature of the oil and gas market and the long-term nature of investments, these effects can be very important for oil companies when analysing the attractiveness of a fiscal regime.

In the upstream sector, where most of the value is created in the industry, host governments often apply specific fiscal regimes to oil and gas production in order to capture a greater share of the economic rent deriving from the country’s natural resources.

Governments looking to stimulate investment may also offer significant incentives in order to account for the risks of exploration.

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Assessment of different regimes based on multiple development scenarios shows a wide variety of outcomes between different regimes in terms of project economics.

The average internal rate of return (IRR) generated by these scenarios across all regimes is around 22% but for the same scenarios, the toughest can yield an IRR of 10% or less, while the most attractive yield an average IRR of 35% or more.

Global fiscal comparison heat map, based on IRR scored from 1 (lowest) to 5 (highest).

Source: GlobalData Thematic Research

GlobalData’s thematic research identifies integrated oil companies such as Petroleo Brasileiro (Petrobras), Chevron Corp and Gazprom; and independent oil companies such as Novatek as some of the relatively well-positioned players in terms of the tax burden faced by their upstream oil and gas operations.

The thematic research also identifies integrated oil companies such as, Surgutneftegas, Lukoil Oil Co and BP; and independent oil companies such as, Occidental Petroleum, Apache Corp and ConocoPhillips, as the companies facing higher tax burden compared to their peers, due to the jurisdictions in which they undertake upstream operations.