Abstract

Governments' contractual and fiscal arrangements with the oil industry have a significant effect on exploration and field development economics. For field developments in some countries, total Government take in the form of royalties, State participation, production sharing and tax can be in excess of 90% of revenues net of capital and operating costs. This paper examines Government take and compares its effect for fiscal regimes in Indonesia, Malaysia and Thailand.

Specifically, the paper covers the following:

(a) A description is given of the petroleum royalty, income tax, surplus profits, State participation and production sharing systems in Indonesia, Malaysia and Thailand.

(b) The results of economics analyses of benchmark hypothetical offshore oil field developments with the application of the different fiscal regimes are presented and discussed. These allow comparison of the economic effects of the taxation/production sharing in isolation from other factors affecting the investment decision such as the different hydrocarbon potential or field characteristics appropriate to the geological basins in each country.

(c) Broad conclusions are made of the comparative economic effects of taxation/production sharing regime on oil company profitability in the countries selected and how they affect both company strategy and Government policy as part of a range of geological, economic and political factors influencing strategy and policy determination.