Between PPT and PIFB 2018: Risk Assessment of Stakeholders for an Integrated Petroleum Asset Development

This paper performs uncertainty quantification (UQ) to capture the risk – both from investor and government perspective – to which an integrated petroleum development project is exposed to. The current fiscal system will be compared against the proposed PIFB 2018. Following the field development concept, the comparative economics are developed using Discounted Cash Flow (DCF) in recognition of the extant fiscal provisions. The DCF is expressed in nominal terms with sensitivity and stochastic modelling. The integrated development concept incorporates a 12kbpd refinery and a 150mmscfd gas plant on a 250mmboe onshore marginal field. The results indicate that the Petroleum Industry Fiscal Bill (PIFB 2018) delivers nearly twice in expected investor value than the current Petroleum Profit Tax/Marginal Field Regulations (PPT/MFR) on the integrated project. Furthermore, government take (GT%) shrinks from 45% under the PPT/MFR to 28% under the proposed regime. Stochastic analysis shows that investors are less exposed to failure under PIFB fiscal terms and instruments than the PPT/MFR. There is a higher likelihood (54%) of investor failure under the PPT than the 46% probability of a loss under the PIFB. The expected GT under PIFB is lower than that under PPT, however, there is significant likelihood (>65%) that neither system will deliver to government as much as the expected lifecycle Take. However, decoupling the value chain reveals varying risk reward profiles for the different segments with implications for policy formulation. A key insight drawn from the study is for policy makers to encourage the development of integrated projects to deliver a "portfolio" government take. This will smoothen out volatilities in tax receipts given that in this integrated development, government inflows from the different value chain components have different timings, levels and uncertainty.