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An Analysis of the Licensing and Fiscal Policies Crystol Energy The US Gulf of Mexico Policy Initiatives: An Analysis of the Licensing and Fiscal Policies Crystol Energy 06 August 2018 Table of Contents List of Figures ............................................................................................................................ 4 List of Tables ............................................................................................................................. 6 List of Boxes .............................................................................................................................. 7 Abbreviations List ....................................................................................................................... 8 Units and Currencies.................................................................................................................11 Executive Summary ..................................................................................................................12 1. Introduction ........................................................................................................................22 2. US Gulf of Mexico Overview ..............................................................................................24 3. Licensing Policy .................................................................................................................30 3.1. Allocation Method .......................................................................................................31 3.1. Restrictions .................................................................................................................34 3.1.1. Bidders List ..........................................................................................................34 3.1.2. Pre-qualifications .................................................................................................35 3.2. Application Fees .........................................................................................................38 3.3. Biddable terms ............................................................................................................38 3.4. Types of Permits .........................................................................................................43 3.4.1. Exploration License..............................................................................................43 3.5. Comparison of Licensing Rounds ...............................................................................54 3.5.1. Blocks and Acreage Awarded ..............................................................................54 3.5.2. Signature Bonus ..................................................................................................56 3.6. Licensing Policy Summary ..........................................................................................58 4. Fiscal Policy Analysis .........................................................................................................60 4.1 Structure of US Fiscal Regime .........................................................................................61 4.1.1. Lease Payments ..................................................................................................61 4.1.2. Exploration Incentives ..........................................................................................64 4.1.3. Corporate Income Tax .........................................................................................68 4.1.4. The Royalty Regime ............................................................................................69 4.2. Modelling and Analysis ...............................................................................................84 4.2.1. Economic Assumptions ........................................................................................85 4.2.2. Pre-Tax Economics..............................................................................................86 4.2.3. Current US GOM Fiscal Regime for Shallow Water .............................................87 4.2.4. Current US GOM Fiscal Regime with 18.75 percent Royalty ...............................89 4.2.5. Current US GOM Regime with Suspension Volumes ...........................................90 4.2.6. Royalty Determined by IRR ..................................................................................91 4.2.7. Royalty Calculated Based on Net Revenue .........................................................92 4.2.8. Royalty with Capital Costs Deduction ..................................................................93 4.2.9. Uplift on Capital Costs .........................................................................................94 4.2.10. Expected Monetary Values ...............................................................................95 4.2.11. Exploration Costs Expensed as Incurred ..........................................................97 2 4.3. Discussion ..................................................................................................................97 4.4. International Comparison .......................................................................................... 104 4.4.1. International Comparison Results .......................................................................... 104 4.5. Summary .................................................................................................................. 107 5. Conclusion and Recommendations .................................................................................. 110 5.1. Licensing Policy ........................................................................................................ 110 5.2. Fiscal Policy .............................................................................................................. 112 3. References ...................................................................................................................... 114 Appendix I: The North Sea Experience ................................................................................... 122 Appendix II: Incentivizing technology development program with associated data sharing and tax credits ............................................................................................................................... 127 Authors and Reviewers ........................................................................................................... 129 3 List of Figures Figure 1: US Gulf of Mexico Oil Production and Proven Reserves ............................................25 Figure 2: Oil Price (WTI): from High to Low ...............................................................................25 Figure 3: US Conventional and Tight Oil Production (2000-2050) .............................................26 Figure 4: US Gulf of Mexico Oil Production: Shallow and Deepwater ........................................28 Figure 5: Offshore Proven Oil Reserves in Selected Countries .................................................29 Figure 6: Licensing Rounds 2016-2017 and Oil Price (Spot WTI)..............................................33 Figure 7: Appraisal Wells and Wildcats Spudded on the Norwegian Continental Shelf (1970- 2017) .................................................................................................................................37 Figure 8: Oil Price and Average Bonus Paid in the US GOM per km² .......................................41 Figure 9: UK Government Revenues from Oil and Gas Production ...........................................41 Figure 10: Maximum Exploration Phase Comparison ................................................................45 Figure 11: Five and Seven Year Average Rental Fee ...............................................................50 Figure 12: Average Size of Blocks Offered in km² .....................................................................53 Figure 13: Block Size and Exploration License Duration ...........................................................53 Figure 14: Blocks Offered and Awarded ....................................................................................55 Figure 15: Total Acreage Offered and Awarded in km² ..............................................................56 Figure 16: Total Bonus Bid in USD ............................................................................................57 Figure 17: Average Bonus Bid per km² .....................................................................................58 Figure 18: US Annual Bonus Receipts from Outer Continental Shelf Lease Sales 1968-2017 ..62 Figure 19: Alberta and British Columbia: Annual Bonus Receipts (2000-2017) .........................63 Figure 20: Norwegian Upstream Tax Payments 2015 ...............................................................66 Figure 21: Number of Companies on the Norwegian Continental Shelf .....................................67 Figure 22: US Outer Continental Shelf Lease and Royalty Revenues (nominal) .......................69 Figure 23: Oil and Gas Sector Economic Contribution in Selected Countries ............................72 Figure 24: Selected Royalty Rates ............................................................................................73 Figure 25: Oil Sands Royalty Rate (Gross) ...............................................................................77 4 Figure 26: Oil Sands Royalty Rate (Net) ...................................................................................78
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