Deepwater success spurs leasing competition

Successful development of deepwater fields off Brazil, the U.K., and in the Gulf of Mexico has prompted governments-particularly in Asia and West Africa-to open vast offshore acreage for leasing.

Yet governments vary widely in the investment incentives they are offering for deepwater development, with the U.K. and U.S. leading the pack, according to the latest worldwide review of petroleum fiscal regimes by Petroconsultants SA, Geneva.

Competition tough

"The competition for high-risk investment in deepwater exploration is particularly tough...and the success of governments in attracting investors has been mixed," Petroconsultants said.

"While the ability to attract any E&P investment is largely determined by geographical prospectivity, a number of countries have introduced significant fiscal incentives to investors," the consultant noted.

For unexplored frontier areas, "the right fiscal terms are particularly important for generating interest," Petronsultants said, adding that investors "are happy to accept very harsh [fiscal] terms where there is an abundance of low-cost/low-risk prospects (such as Venezuela)."

The report showed considerable disparity in the average "state take" that various countries expect to receive from the proceeds of exploration and production activity on deepwater leases.

Comparing fiscal regimes

The U.K. offers the same lenient fiscal regime to explorers in both deepwater and more mature, shallower offshore areas and has the most attractive incentives anywhere in the world.

The introduction of royalty relief for development of marginal fields in the U.S. Gulf of Mexico has placed this region in the top 10 of all in the study.

The report compares 166 petroleum fiscal regimes, showing that the worldwide average state take is 69.9% of net revenues.

The U.K. is lowest at 33.4% and the U.S. next at 46.1%; Cote d'Ivoire is third at 50.9% (see Table 1 [75432 bytes]).

"Cote d'Ivoire's recent licensing round was greeted by considerable enthusiasm by the industry late in 1996, with contracts to be signed early this year," the report noted.

"By contrast, Indonesia has received little response to its widespread acreage offering 2 years ago, and most of its deepwater acreage remains unlicensed." Indonesia has one of the highest state takes, at 72.4% of net offshore revenues.

The report also compares the 166 fiscal regimes according to existing production levels: large, significant, and frontier producing regimes (see Table 2 [51600 bytes]).

It shows a "general pattern" where nations with an existing infrastructure and proven reserve base extract considerably more industry offshore proceeds than countries in emerging areas.

The U.K. is a "notable exception," Petroconsultants noted, with a state take 40-45% lower than the average for its "peer group" of frontier and significant producing regimes.

New opportunities

New offshore leasing opportunities are unfolding in areas as diverse as Viet Nam and the Caspian Sea, and "the global nature of the competition of such high-risk investment is obvious," the consulting firm said.

But it warned, "Some countries may be, in effect, pricing themselves out of the market and need to look further afield to benchmark their deepwater terms with the U.K. and U.S. markets."

Petroconsultants was acquired late last year by Information Handling Services Group Inc. (IHS Group), Englewood, Colo. (OGJ, Nov. 11, 1996, p. 95).