Economic Analysis of Selected Offshore Petroleum Arrangements

As a result of the current decline of oil prices, exploration decisions are more carefully analysed than ever before. At the same time various governments have introduced incentives to reinvest in exploration and development in order to maintain or increase activity. As a result, most exploration decisions are now being analysed as "incremental investments". This has the effect of "trapping" investments in areas where profits are currently being made. This in turn creates serious problems for those developing countries which would like to attract exploration. The paper analyses issues related to sliding scale formulae based on the ROR, and the economic impact of the size of the area to which fiscal terms apply.