Title : Monetary assessment of attractiveness production sharing agreement
Abstract:
?urrent, the significance and role of production sharing agreements is assessed in terms of the area of land granted for subsoil use to the investor(s), the amount of funds spent on the extraction of mineral raw materials, the volume of extracted materials, the investor(s)' share in the raw materials, the amount of funds spent by investors on social obligations, etc.
Despite established views on the valuation of production sharing agreements, the «monetary expression» of such agreements is not carried out, since there are no regulatory or design bases for such an assessment.
The foundation of the monetary valuation of production sharing agreements is the conditional «two whales»:
1) operational whale;
2) financial whale.
The «operational whale» is inherent in the formula for the monetary expression of production sharing agreements, which was proposed in 2010 by contract researcher Mazeel (2010) in the work «Fiscal Systems and Oil Contracts» (gross income, net income, taxable income, deductions).
The economic activities of the «financial whale» under a production sharing agreement are:
1) currency purchase and sale transactions;
2) the rental rate.
The only drawback of this formula, in my opinion, is:
1) that it is not applied in hydrocarbon transactions (selective);
2) the amount of refunded value added tax is not taken into account;
3) the lack of market infrastructure for the resale of the «natural asset» for investors under a production sharing agreement.
However, the organizational basis of a concession contract is significantly different from production sharing agreements, and therefore production sharing agreements must have their own monetary valuation formula.
In view of the above, the optimal model for monetary valuation of production sharing agreements, which is closer to PSA, regardless of the mineral category, is the valuation should be according to the following components:
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Year of production sharing agreement
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Production value
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Gross income after deduction of taxes and fees
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Total amount of all bonuses
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Group of intangible assets and their value
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Capital expenditure
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Asset price per year
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Total tax and rent expenses
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Amount of tax refunds returned |
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