Development Risks and Petroleum Fiscal Systems: A Comparative Study of the Gulf of Guinea

Omosebi, Omotayo A.¹; Iledare, Omowumi O.²
¹Petroleum Engineering, African University of Science & Technology, Abuja, FCT Abuja, Nigeria.
²Centre for Energy Studies, Louisiana State University, Baton Rouge, LA.

This paper analyzes the development risks underlying petroleum resource development in the Gulf of Guinea keeping in perspective the fiscal regimes in the region. Using hypothetical field, a comparative study of the performance profile and attractiveness of exploration and production (E&P) investments in the Gulf Region suggests that the production sharing contract (PSC) arrangement is attractive to the E&P companies at an optimal band of product prices and cost recovery limit. Under the fiscal parameters and terms specified in this analysis, the contractor take becomes more favorable as product price increases with cost recovery limit. The study also reveals strong evidence suggesting that most fiscal regimes in the Gulf of Guinea are structured to favor deepwater development. This is particularly of interest to the E&P operators in view of the increasing social and financial costs of onshore and near shore operations.

Operating companies can apply the model developed to ascertain the attractiveness of new prospects or the economic implications of newly proposed contract terms on existing leases by focusing on economic indices and government/contractor take statistics. Further, future fiscal systems can be appraised within the context of the ensuing petroleum industry institutional restructuring and reforms. This study, therefore, provides a guide on how contract terms should be structured and designed to maximize government take from E&P ventures keeping in perspective the underlying economic objectives of the operating companies.

AAPG Search and Discovery Article #90155©2012 AAPG International Conference & Exhibition, Singapore, 16-19 September 2012