A. Introduction
B. Illustration on the Fiscal Model
Revenue Distribution
Under the EPT, cost recovery and profit sharing are based on a single oil and gas pool instead of separate accounts of oil and gas to simplify PSC management.
Cash Payment
Cash payment to the the Federal and State Governments is 10 per cent of the gross production.
Cost Recovery Ceiling
The cost recovery ceiling is fixed at 70 per cent of the gross production to accelerate cost recovery and provide a more stable recovery pool throughout the life of the PSC.
Profit Sharing
The remaining production after cash payment and cost recovery is treated as profit that is shared between PETRONAS and contractor based on the self-adjusted profit-sharing mechanism. Contractor’s profit share is tied to the profitability index (PI) with a maximum share of 90 per cent for PI up to 1.50 and a minimum share of 30 per cent for PI equal to or more than 2.50. The interpolated contractor share between PI of 1.50 and PI of 2.50 shall be determined based on the following formula:
Contractor Profit Share = 1.8 – 0.6 x PI
The PI is represented by the cumulative contractor’s entitlement comprising the cost recovery and profit share divided by the cumulative recoverable cost from the inception.
The front loading of cash flow represented by the 70 per cent maximum cost recovery and the 90 per cent contractor profit share for profitability index up to 1.50 would accelerates the after-tax discounted payback period. In addition, the progressive adjustment provides a better buffer for contractor to manage risk under unfavourable scenarios such as lower actual price and volume downsides.
THV and SP
The THV and SP provisions are not applicable under EPT.
The concept behind the EPT is to have the PI as a single value balancing mechanism for determining the profit sharing between PETRONAS and contractor that allows a more equitable sharing of upside rewards, drives reinvestments within asset and promotes multiple field developments throughout the life of the PSC.
C. The Non-fiscal Enhancement
Another element of risk reward investment decision equation is the exploration exposure. PETRONAS has made another step change related to this investment driver to enhance competitiveness of our Malaysia bid round through the removal of PETRONAS Carigali Sdn Bhd (PCSB) carried interest requirement.
The removal of PCSB carried interest is an effort to handle the contractor’s exploration risk exposure as well as providing capital which could be utilised to fund other exploration activities. The removal of carried interest is applicable for all future exploration PSCs in shallow water and deep water blocks.
D. The Benefits for Contractor