ACCESS NUMBER: 30951-18178 

STUDY TITLE: Capital Investment Decision Making and Trends: Implications on 

Petroleum Resource Development in the U.S. Gulf of Mexico 

REPORT TITLE: Fiscal System Analysis: Concessionary and Contractual Systems 

Used in Offshore Petroleum Arrangements 

CONTRACT NUMBER: 1435-01-01-30951-18178 

SPONSORING OCS REGION: Gulf of Mexico 

APPLICABLE PLANNING AREA: Gulfwide 

FISCAL YEAR(S) OF PROJECT FUNDING: 2002; 2003; 2004 

COMPLETION DATE OF REPORT: April 2004 

COST(S): FY 2002: $74,475.67; FY 2003: $25,720.85; FY 2004: $4.48; 

CUMMULATIVE PROJECT COST: $100,201.00 

PROJECT MANAGER: M.J. Kaiser 

AFFILIATION: Louisiana State University, Center for Energy Studies 

ADDRESS: Energy, Coast & Environment Bldg., Nicholson Extension, Baton Rouge, 

Louisiana 70803 

PRINCIPAL INVESTIGATOR: M.J. Kaiser. 

KEY WORDS: Gulf of Mexico; contracts; economics; offshore; fiscal system analysis; 

modeling.

BACKGROUND: The economics of the upstream petroleum business is complex and 

dynamic. Each year anywhere between 25-50 countries in the world offer license 

rounds, 20-30 countries introduce new model contracts or fiscal regimes, and nearly all 

countries revise their tax laws during their annual budgetary process. 

The focus of fiscal system analysis depends upon your perspective. From the host 

government’s point of view, focus is usually maintained on the division of profit (take) 

between the contractor and government. From the operator’s perspective, economic 

measures such as the present value and rate of return describing the expected 

profitability of the project are of primary interest. 

OBJECTIVES: The manner in which the fiscal terms and parameters of the contract 

impact system measures are complicated and not well understood. The purpose of this 

report is to quantify the influence of private and market uncertainty on the computation 
ACCESS NUMBER: 30951-18178 

of the economic and system measures of a petroleum producing field governed under 

concessionary and contractual fiscal system arrangements. 

DESCRIPTION: The economic and system measures associated with hydrocarbon 

production are subject to various levels of private and market uncertainty. This paper 

develops an analytic framework to quantify the influence of private and market 

uncertainty under contractual and concessionary fiscal systems. 

The impact of changes in system parameters is usually presented as a series of graphs 

or tables that depict the present value, rate of return, or take (or whatever measure is 

under consideration) as a function of one or more variables under a “high” and “low” 

case scenario. While useful, this approach is generally piecemeal and the results are 

anchored to the initial conditions employed. A more general and concise approach to 

fiscal system sensitivity is developed. 

SIGNIFICANT CONCLUSIONS: A constructive approach to fiscal system analysis was 

developed to isolate variable interaction and determine the manner in which private and 

market uncertainty impact take and the economic measures associated with a field. 

Functional relations were developed by computing the component measures for 

parameter vectors selected within a given design space. The relative impact of the 

parameters and the manner in which the variables are correlated was also established 

in a general manner. The methodology was illustrated on hypothetical oil fields and 

case studies for the deepwater Na Kika development and the Angolan deepwater 

Girassol development were considered. The impact of royalty relief on the field 

economics of Na Kika and the impact of fiscal design on the field economics of Girassol 

were examined. 

STUDY RESULTS: The paper develops an analytic framework to quantify the influence 

of private and market uncertainty on the economic and system measures associated 

with a field. A “meta-modeling” approach is employed to construct regression models of 

the system measures in terms of various exogenous, fiscal, and user-defined 

parameters. In meta-modeling, a model of the system is first constructed, and then 

meta data is generated for variables simulated within a specified design space. Linear 

models are then constructed from the meta data. Meta-modeling is not a new construct, 

but as applied to fiscal system analysis is new, useful, and novel, being an especially 

good way to understand the structure and sensitivity of fiscal systems to various design 

parameters. 

STUDY PRODUCTS: Kaiser, M.J. and A.G. Pulsipher. 2004. Fiscal system analysis: 

Concessionary and contractual systems used in offshore petroleum arrangements. U.S. 

Department of the Interior, Minerals Management Service, Gulf of Mexico OCS Region, 

New Orleans, LA. OCS Study MMS 2004-016. 78 pp.