Governments’ responses to low oil prices will have an effect on supply dynamics for years to come, depending on whether fiscal regimes are adjusted to provide a landscape in which companies can make big development decisions, the London-based research and consultancy firm said.
GlobalData upstream fiscal analyst Will Scargill said relatively low costs and the design of fiscal regimes in a number of countries should mitigate the impact of the recent price drop in most mature basins.
“Several governments have taken positive steps to adapt to lower prices in recent months, with Argentina’s measures especially improving project economics,” Scargill said.
Argentina has reduced the investment threshold for the Investment Promotion Scheme for Hydrocarbon Production and has decreased the rate of export duty, for when oil prices are below $80 per barrel, to 10-13% from 45%, meaning fields should remain profitable at $US50/bbl, he said.
“The impact of low prices in the short to medium term is likely to be felt most keenly by governments in countries that rely on hydrocarbon revenues, such as Russia and Venezuela, while the effect on supply should be relatively limited,” he said.
“The exception to this is in the North Sea, where high costs mean that tax cuts are required if lasting effects on the sector are to be avoided.”
However, he noted that to enable companies to make large investment decisions in growth areas and frontier basins, governments should offer a fiscal regime that responds to prevailing price given the cyclical nature of oil prices.
“Brazil’s pre-salt resources could add millions of barrels per day to supply by the 2020s, but this is contingent on exploration and production firms feeling confident enough to commit billions of dollars to development now,” he said.
“Additionally, deepwater discoveries in Mexico’s Perdido Fold Belt have generated significant interest, and with an anticipated breakeven price between $41-65/bbl for new licences, including the additional royalty, the commercial viability of developing these areas will depend on the final fiscal regime design.”
