Since 2019, the Dominican Republic has offered upstream acreage through production sharing agreements (PSAs). However, acreage awarded before 2019 was held under concession contracts.
Under PSAs, licensees are not required to pay any royalties and bonuses, instead surface fees are paid during the exploration and production period. Gross production is shared between the licensee and the state based on rates which vary according to the price and production rate of hydrocarbons. State’s production sharing rate for oil ranges between 3-25% and for gas between 2-8%. Corporate income tax is applied at rate of 27% as well as a minimum participation tax which guarantees the minimum profit share of the government is no less than 40%. Furthermore, the state has no participation interest in the project.
Under the minimum PSA terms, Dominican Republic’s fiscal regime offers one of the highest rate of return and the lowest fiscal take among its regional peers in North and South America. Regressive elements within the regime including the effective royalty (through the minimum profit share to the state) allow the fiscal take to increase as price decrease or cost increase. Although, there is a counter effect when price increase or cost decrease, the change on the fiscal take is subdued.
The new fiscal terms are attractive and are expected to remain favourable in the following years given the low-level of exploration activity in the country. The high exploration interest seen across the Caribbean region, the increasing demand of imported natural gas in Dominican Republic and the strategic position of the country for redistributing natural gas in the region are attractive propositions to investors. In 2020, the Dominican Republic awarded Apache Dominican Republic Corporation the offshore Block SP2, through the country’s first licensing round. Prior to the COVID-19 pandemic, the country was looking to build on this through the launch of a second round, however it is possible that the round could be delayed until investment conditions improve.