The oil and gas sector is strategic for the economy, as it represents a significant portion of GDP, domestic and foreign investments and the Balance of Payments. Therefore, it is necessary to understand its challenges and complexities from an economic perspective. In this sense, the fiscal regime adopted by a country is critical in determining the economic success of oil and gas production projects, in addition to being an incentive mechanism that can attract or expel investments in the sector. Understanding well how these fiscal regimes work, especially in Brazil, is a competitive advantage for everyone who works in the sector.
Since 2010, the production sharing model has been in force in Brazil, in blocks located in the pre-salt and in other strategic areas. This model adds to another fiscal rule that traditionally operated in the country - the concession model. Sharing, in general terms, arises when there is a partnership contract between the country and the company that wins a bid (or companies, in the case of consortiums), where the private agent is obliged to deliver part of the hydrocarbon produced to the government – the profit oil. In addition to profit oil, companies must pay other types of taxes.
Therefore, the main goal of this work is to present a methodology to calculate the impacts of the Brazilian production sharing taxation model on the economics of oil and gas projects – measuring the financial return of private enterprises in the sector for different levels of operating scales and considering all bidding rounds already carried out. The chosen strategy is to generate a pessimistic scenario with less oil and an optimistic one with more production, considering the taxation details existing in the six bidding rounds carried out by the Brazilian National Agency for Petroleum, Natural Gas and Biofuels (ANP). In order to get such results, a taxation model was built in R programming language that takes into account all the most relevant aspects related to economic indicators needed. The methodology is general and explained step by step - for those who are not familiar with the programming language, there is also a definition of each step in mathematical terms.
This paper is organized as follows: after the introduction, which gives more details about the issues regarding fiscal Regimes and firm profitability in Brazil, we have a literature review about technical aspects of an oil and gas project, providing the foundations in the topics of Exploration, Production Development and Fiscal Regimes. In the Methodology chapter, we present the modelling strategy for investment valuation and simulation. The following section presents the results, using language programming R and all the details on how financial indicators of an oil and gas project must be evaluated under a sharing regime. The results also include a discussion about progressiveness/regressiveness of taxes under a sharing regime and simulations for projects in different sharing bidding models. The final section discusses policy implications and recommendations.
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