Figure 1 – Map of 85 countries with current bid rounds and open-door opportunities
Over the past 18 months there has been a surge of bid round activity around the world. In fact, some 85 countries have either launched a bid round (more than 105) or held open-door policies (Figure 1). This activity covered approximately 1.6 million sq km on offer representing a total of 3,569 blocks located both onshore and offshore, including deepwater areas (Figure 2). Out of a total of 49 countries offering bid round acreage, those which dominated in the period included: Australia, UK, Denmark, Mexico, India, Argentina, Brazil, Ukraine, Poland and Croatia.
Figure 2 – Past bid round activity compared to oil price
The trends observed in acreage offers in the period 2018 – Q1 2019 are:
- Very busy bid round activity
- Regime changes significant
- Increases in flexibility of regime choice
- Countries continue to issue incentives and disincentives
- Many countries continue to offer deepwater terms
- Gas terms remain more lenient reflecting higher costs and marketing obstacles
- Typically, no terms specific to unconventionals (shale/CBM)
- Bans on exploration became more prevalent due largely to opposition to fossil fuel developments by environmental lobby groups
- Increased instance of countries having first bid round
One of the most marked changes is the emergence of the revenue sharing contract (RSC) in such countries as Indonesia, Mexico, India, and Ecuador. In most cases, the reasoning behind the shift from a production sharing contract (PSC) regime to an RSC regime is the removal of the cost recovery element. In both Indonesia and India cost recovery issues caused a great deal of problems over exactly what is cost recoverable and how this cost recovery is funded by the state. In Thailand, unlike Indonesia and India, the trend has been to adopt a PSC regime after the country had preserved solely with a concession regime for many years. The authorities have retained the concession system but adopted the PSC for specific blocks, most notably in the renewal of the Erawan and Bongkot gas field blocks located offshore in the Gulf of Thailand. The PSC is also to be used in the long-delayed 21st bid round.
Another trend observed during this period is the preponderance of cancelled or suspended exploration in many areas of the world due largely to the influence of environmental lobby groups against the usage of fossil fuels. Often, this also stemmed from opposition to the practice of fracking on adverse environmental grounds. Some of the countries involved in partial bans and/or moratoriums on exploration include France, Denmark, Germany, Ireland, Italy, Norway, UK, onshore eastern Australia and offshore New Zealand (Figure 3).
Figure 3 – Countries issuing partial bans or moratoriums on exploration
Also notable are countries planning or holding their first bid round including Ghana, Guyana, Kenya, Dominican Republic, Panama, Senegal, Somalia, and Cuba (Figure 4). Most of these inaugural bid rounds have been delayed or extended multiple times.
Figure 4 – Countries planning or holding their first bid round
The most notable fiscal incentives to be offered in this period have been in Angola, Indonesia and India, again showing the governments’ intention to encourage exploration activity. In Angola, the authorities have issued several incentives in an effort to slow declining production. These incentives include tax relaxation on some deepwater blocks, unique terms for the development of marginal fields and additional legislation allowing stand-alone gas field developments to proceed. In 2017, Indonesian authorities introduced and then amended the “gross split” RSC scheme, to take account of field variables and oil & gas prices with the effect that, in some cases, increase the contractor’s share of gross production to as much as 70 percent. In India, the authorities introduced a new policy to encourage exploration in unexplored areas and applied reduced royalty rates (10 percent concessional) on additional gas production from established production areas.
The most notable fiscal disincentives to be offered in this period have been in Romania and Australia. In Romania, authorities introduced the “Offshore Law” which requires offshore developments to pay extra income tax based on gas prices and the requirement to market at least 50 percent of gas production within the country. The advent of this law caused the postponement of investment decisions on two Black Sea gas developments (Midia and Neptun). In Australia, as a response to growing disgruntlement over low returns to the state from large export LNG projects, the authorities adjusted the uplift rate applied to exploration costs for the calculation of Petroleum Resource Rent Tax (PRRT) — the rate was lowered from 15 percent to 5 percent but is not retrospective. In addition, onshore developments were removed from the PRRT net after they were first included in 2012.
For more details on the global bid roundup, please join Drillinginfo and PESGB on 12 June in London https://www.pesgb.org.uk/events/bid-rounds-a-global-roundup-in-2018-19/
[email protected] — Economist
[email protected] — Senior Commercial Analyst
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