Asia-Pacific's upstream industry has been dogged by declining oil production, exploration and licensing activity. Since 2014 exploration investment in the region has fallen 66% to just over €5bn in 2018, thwarting new development opportunities.
Wood Mackenzie Fiscal Service - Upstream Competetive Index
Prosperity Index Vs Fiscal Attractiveness Index
Prosperity Index Vs Fiscal Attractiveness Index
Recognising these challenges, governments in the region have begun revising fiscal systems in the hope of reversing the trend.
According to Wood Mackenzie's Upstream Competitiveness Index, Australasia and the Indian subcontinent are the most attractive regions for upstream investment.
Petroleum economist at Wood Mackenzie Nikita Golubchenko said: “While the main driver in any upstream investment decision is geological prospectivity, balancing that with the right fiscal terms is key to extracting maximum volumes and value. Looking at fiscal terms and exploration potential in Asia-Pacific, a number of countries in Australasia and the Indian subcontinent fall in the ‘investment attractive’ zone.”
Australia is discussing changes to its petroleum resource revenue tax (PRRT) structure, in a bid to ensure fair share of economic rent from resource projects. The revision of gas transfer pricing may also have high material impact, as it forms the price under which PRRT is paid.
India replaced its traditional production sharing contract scheme in 2016, preferring a pure revenue sharing contract system. As part of the revision, India introduced biddable fiscal terms which allowed potential investors to choose the acceptable level of government share. However, the results of the recent licensing rounds show only incumbent domestic companies’ interest in the blocks.
India’s recently announced reforms for enhancing domestic exploration and production, which include simplifying approval processes and permission for national oil companies (NOCs) to induct private players in their developments, may reverse this trend.
“The mixed response from the industry is mirrored elsewhere in Southeast Asia where there are cost-insensitive fiscal systems, NOC dominance and presence of other regulatory burdens,” Golubchenko added.
Countries such as Bangladesh, Myanmar and Sri Lanka will also be revising their terms in advance of upcoming licensing rounds. Wood Mackenzie expects biddable parameters to be incorporated.
