Information | Analytics | Expertise
JUNE 2014
BENCHMARKING NORWAY’S
INVESTMENT
ATTRACTIVENESS
© 2014 IHS / ALL RIGHTS RESERVED
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Contents:
• Scope
• Peer Group Selection and IHS indices
• Fiscal Benchmarking
• Political Risks Benchmarking
• CO2 Tax and Policy Benchmarking
• IHS Expert View
• IHS Assumptions and Methodology
© 2014 IHS
2
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Scope:
The scope of this study is to assess Norway’s attractiveness for the
international investor through the benchmarking its:
• Fiscal attractiveness for the E&P investment;
• Political risk and related issues;
• Carbon tax and overall carbon policy for the petroleum industry.
This has been carried out through comparison with those of countries that
are also competing with Norway for international investment.
Benchmarking was carried out using:
• IHS proprietary tools and services;
• Collation of the opinions of IHS subject matter experts with particular expertise
in the three areas summarised above.
© 2014 IHS
3
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Peer Group Selection and IHS
Indices
4
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Peer Group Countries Selection (Fiscal and Political
Benchmarking):
In order to identify Peer Group countries for fiscal and political benchmarking, IHS has focused on countries with
similar parameters to Norway by analysing:
Maturity of the country’s E&P sector:
• Majority of portfolio should be predominantly mature exploration countries with subsurface
parameters and E&P activity levels comparable to Norway.
• Include 1-2 partly explored countries, with existing development & production, recent discoveries,
and potentially several frontier/unexplored basins.
Geography:
• The portfolio should include countries that have exploration and production operations offshore and
more specifically in the water depth similar to Johann Sverdrup development (120 m.)
Type of fiscal regime:
• Type of fiscal regime should not be used as a limiting factor – i.e. Peer Group should include both Tax
and Royalty and PSC regimes.
Within the identified group of countries, consider regimes that attract the highest level of investors as an indication
of appropriate risk/reward for Governments and Investors and a sound benchmark for comparison purposes.
© 2014 IHS
5
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Peer Group Countries Selection (CO2 Tax and Carbon Policy
Benchmarking):
IHS developed a selected group of countries to serve as benchmarks for the stringency of Norway’s
CO2 taxes and climate policy and their implications for Norway’s investment attractiveness.
Countries were selected take into account:
•
Oil and gas exploration and production characteristics
•
Upstream investment activity levels
•
Carbon intensity and absolute GHG emissions trends
•
Climate policy and regulation
•
Significance to international energy system
© 2014 IHS
6
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Peer Group Countries
Fiscal and Political Benchmarking
• UK
• USA
• Australia
• Canada
• Brazil
• Nigeria
CO2 Tax and Carbon Policy Benchmarking
• Nigeria
• UK
• Indonesia
• USA
• Mexico
• Australia
• China
• Canada
• Netherlands
• Brazil
Countries common for fiscal, political and
carbon policy benchmarking
© 2014 IHS
•
•
•
•
Indonesia
Angola
Mozambique
Israel
•
•
•
•
•
Denmark
Russia
UAE
Saudi Arabia
Malaysia
Countries specific for fiscal, political and
carbon policy benchmarking
7
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
INDICES
In the execution of work, IHS used the following Indices:
1. IHS Country Risk – Political, Economical, Legal, Tax, Operation,
Security Risk (PELTOS) ;
2. IHS Overall Oil and Gas Risk Service Rating (OGRS);
3. IHS Petroleum Economics and Policy Solutions (PEPS);
4. IHS Carbon Policy Indices (CPI).
© 2014 IHS
8
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Fiscal Benchmarking
9
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Summary of Assumed Fiscal Terms:
Country
Fiscal Regime
Bonus
Contr es /
State
act Other
Participation
Type Payme
nts
Norway
Norway - Royalty Tax
Terms
R/T
Angola
Angola - 2008 Model
PSA Terms Offshore
(Shelf & Deep Water
less than 1000m)
S*, T*,
PSA
65% *
F*
Australia
Australia - PRRT Terms
Offshore (except NW R/T
Shelf)
None
None
20%*
None
Royalty
Cost Recovery/Tax
Depreciation
Cost
Recovery
Ceiling
None
TAX (Exploration: XPS;
Development: 6 yrs) SPT
(Exploration: XPS;
Development: 6 yrs; 22%
Uplift on Development 4
yrs)
N/A
None
CRC (Exploration: XPS;
Development: 4 yrs, 10%
uplift);
TAX (n/a)
None
TAX (Exploration: XPS;
Development: 8 yrs)
Contractor Income Tax
Profit Share
Rate
N/A
27%
SPT (51%)
50% of PDN
(rising to 65% 70% - 10%
after 5 years)
50%
None
N/A
29%
PRRT (40%);
WTH (15%)
34%
SPF (0% - 40%);
ISS (5%)*;
IPI (10%)*;
ICMS (22%)*;
PIS (1.65%);
COFINS (7.6%);
II (15%)*;
RDE (1%)
N/A
Brazil
Brazil - Royalty Tax
Terms Offshore less
than 400m (non-pre
salt areas)
R/T
S*, F
None
10%
SPF (Intangible: XPS;
Tangible: 10 yrs);
TAX (10 yrs)
N/A
N/A
Canada
Canada - Nova Scotia
Generic Offshore
Royalty Tax Terms
R/T
S*
None
2% - 35%
TAX (Exploration: XPS;
Development: Intangible - N/A
30% db, Tangible - 25% db)
N/A
Indonesia
Indonesia - 2012
Bidding Rounds PSC
Terms
S*, P*,
PSA
10%
A
CRC & TAX (Exploration:
XPS; Development:
100% of
FTP @ 20%
Intangible - XPS, Tangible - (PDN - FTP)
25% db 5 yrs)
Oil:
58.333%;
Gas:
66.6667%
Israel
Israel - 2011 Royalty
Tax Terms
R/T
None
12.5%
TAX (10 yrs)*
N/A
N/A
Mozambique
Mozambique - 2010
Model PSA Terms
PSA
P*, T*,
10%*
F*
Oil: 10%;
Gas: 6%
CRC & TAX (Exploration:
XPS; Development: 4 yrs)
70%* of
95% - 50%* 32%
(PDN - ROY)
© 2014 IHS
None
Additional Taxes
Provincial
WTH (25%)
(16%);
Federal (15%)
DSO (14.58% of oil
25%
production @ 25%
(40% effective
market price after 5
tax rate incl.
yrs of production);
withholding tax)
WTH (20%)
22%
Petroleum Profits
(reducing to
Levy (0% - 50%);
18% by 2016) WTH (25%)
WTH (20%)
10
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Summary of Assumed Fiscal Terms (cont.):
Bonuses
Contract / Other State
Type
Payment Participation
s
Royalty
Cost Recovery/Tax
Depreciation
None*
16.5% 20%
CRC & TAX
(Exploration: XPS;
Development:
Intangible - XPS,
Tangible - 5 yrs)
None
None
None
TAX (XPS)
S*
None
18.75%
Country
Fiscal Regime
Nigeria
Nigeria - 2000
Royalty Tax
Terms On & Offshore less than
200m
R/T
S*, P*
United
Kingdom
United Kingdom R/T
Royalty Tax
Terms
United States
United States Gulf of Mexico
Royalty Tax
Terms Offshore
less than 200m
R/T
Cost Recovery
Ceiling
Contractor
Profit Share
Income Tax
Rate
N/A
N/A
Local Content
Development Levy
(1%);
67.75% - 85%
Indirect Taxes (1% 20%) (Oil);
Education Tax (2%)
N/A
N/A
30%
Supplementary
Charge (32%)
TAX (Intangible: XPS;
N/A
Tangible: 150% db
over 10 yrs)
N/A
35%
WTH (30%)
Additional Taxes
•Terms marked with an asterisk (*) represent biddable and /or negotiable terms, for which no specific figures are provided in the Model Contracts. For the purposes of
fiscal models used in the benchmarking, IHS made assumptions for such terms, as reflected in the table above and on subsequent slides. Where possible, IHS indicated
terms from the most recent actual contracts or bidding rounds, based on the publicly available data.
• Surface rental fees are not modelled because they are usually tied to contract area size ($/acre or $/km), which varies widely and does not warrant a generic assumption.
• Abbreviations used in the table :
•S: Signature Bonus
•D: Discovery Bonus
•P: Production Bonus
•T: Training fees
• A: Administration Fees
• F: Fund payments
• CRC: Cost Recovery Ceiling
• XPS: costs are expensed & recovered
/deducted immediately
• PDN: Gross Production
• ROY :Royalty
Source: IHS PEPS
© 2014 IHS
11
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Average Undiscounted State Take* % for Oil and Gas Fields
in the Peer Group
100.0
Nigeria - 2000 Royalty Tax Terms On & Off-shore less than 200m
93.5
93.0
97.0
Angola - 2008 Model PSA Terms Offshore (Shelf & Deep Water…
78.5
81.3
Norway - Royalty Tax Terms
71.9
70.9
Mozambique - 2010 Model PSA Terms
70.1
68.2
Canada - Nova Scotia Generic Offshore Royalty Tax Terms
Australia - PRRT Terms Offshore (except NW Shelf)
66.0
69.3
Israel - 2011 Royalty Tax Terms
65.9
70.0
64.6
Brazil - Royalty Tax Terms Offshore less than 400m (non-pre…
53.5
64.5
Indonesia - 2012 Bidding Rounds PSC Terms
71.8
56.8
United States - Gulf of Mexico Royalty Tax Terms Offshore…
50.3
56.3
United Kingdom - Royalty Tax Terms
61.6
0
20
40
60
GAS
80
100
OIL
• Norway has the third highest average Undiscounted State Take % under the current assumptions
(hypothetical fields and assumed fiscal terms) after Nigeria and Angola among the selected Peer Group
Countries.
* State Take measures % share of the gross project net cash flow before state participation which accrues to
the host country over the life of the field as a result of royalty, production shares, taxes, and participation in
the project by the National Oil Company.
Source: IHS PEPS
© 2014 IHS
12
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Average Undiscounted State Take for Marginal, Economic
and Upside Oilfields in the Peer Group
98
Angola - 2008 Model PSA Terms Offshore (Shelf & Deep
Water less than 1000m)
Nigeria - 2000 Royalty Tax Terms On & Off-shore less than
200m
96
88
98
82
Norway - Royalty Tax Terms
81
71
Indonesia - 2012 Bidding Rounds PSC Terms
73
71
Israel - 2011 Royalty Tax Terms
69
70
Mozambique - 2010 Model PSA Terms
72
70
Australia - PRRT Terms Offshore (except NW Shelf)
69
Canada - Nova Scotia Generic Offshore Royalty Tax Terms
69
62
United Kingdom - Royalty Tax Terms
61
50
Brazil - Royalty Tax Terms Offshore less than 400m (non-pre
salt areas)
United States - Gulf of Mexico Royalty Tax Terms Offshore
less than 200m
57
49
52
0
Upside
Hypothetical fields, under
various development and
price scenarios return
different economic results
on gross project basis.
Based on gross project
economics, fields are
grouped into marginal,
economic and upside.
68
10
Economic
20
30
40
50
60
70
80
90
100
Marginal
• Norway has the third highest average Undiscounted State Take % for marginal, economic and upside fields
under current assumptions (hypothetical fields and assumed fiscal terms) after Nigeria and Angola among the
selected Peer Group Countries.
Source: IHS PEPS
© 2014 IHS
13
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Undiscounted State Take for Offshore Oil Fields vs Remaining
Offshore Oil Resources
Total Oil Resources Remaining, Billion Barrels
of Oil
70.0
Brazil
60.0
50.0
40.0
30.0
Nigeria
20.0
United States
Angola
United Kingdom
10.0
Indonesia Mozambique
Australia
Canada
0.0
45
55
65
C Norway
Israel
75
85
95
Average Undiscounted State Take %
•
•
•
IHS compared the level of Undiscounted State Take in the Peer Group countries for selected regimes with
IHS estimates of their remaining level of oil reserves for specific areas relevant to the fiscal terms. Norway
has a relatively high Undiscounted State Take % vs remaining oil resources among the Peer Group countries.
Remaining resources are an estimate of discovered hydrocarbons, which IHS considers could be recovered
under existing technical and economic conditions, which have yet to be produced (specific to areas where
fiscal terms apply).
Note: Remaining resources are specific to offshore areas but not specific to fiscal terms
Source: IHS PEPS, IHS Edin
© 2014 IHS
14
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Undiscounted State Take for Offshore Gas Fields vs Remaining
Offshore Gas Resources
210.0
Total Gas Resources Remaining, Trillion Cubic Feet
Australia
•
•
•
180.0
150.0
Mozambique
Indonesia
120.0
Norway
C
Brazil
90.0
Nigeria
60.0
United Kingdom
Israel
Angola
30.0
United States
Canada
0.0
50
55
60
65
70
75
80
Average Undiscounted State Take %
85
90
95
100
IHS compared level of Undiscounted State Take in the Peer Group countries with estimates of their remaining
level of gas reserves for specific areas relevant to the fiscal terms. Norway has a relatively high State Take %
vs remaining oil resources among the Peer Group countries.
Remaining resources are an estimate of discovered hydrocarbons, which IHS considers could be recovered
under existing technical and economic conditions, which have yet to be produced.
Note: Remaining resources are specific to offshore areas but not specific for fiscal terms.
Source: IHS PEPS, IHS Edin
© 2014 IHS
15
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
E&P Activity Rating of Peer Group Countries (Q2 2014)
0-5 scale, lower score represents higher investor attractiveness
Canada (1)
0.25
Brazil (3)
0.85
Norway (6)
1.25
United States (9)
1.61
Angola (11)
1.81
Mozambique (13)
1.93
Israel (15)
1.99
Australia (17)
2.03
United Kingdom (21)
2.27
Nigeria (22)
2.42
Indonesia (25)
0.00
2.61
0.50
1.00
1.50
Exploration Success
2.00
Production
2.50
3.00
Reserves
3.50
4.00
4.50
5.00
Activity
• Norway ranks third best in the Peer Group countries and sixth in the IHS PEPS E&P attractiveness
rating of 129 countries.
• Note: PEPS Ranking and Rating database only captures regimes with E&P activity over the period
from 2008 onwards.
Source: IHS PEPS
© 2014 IHS
16
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Fiscal Rating of Peer Group Countries (Q2 2014)
0-5 scale, lower score represents higher investor attractiveness
United States
1.7
Brazil
2.0
United Kingdom
2.1
Mozambique
2.5
Australia
2.6
Indonesia
2.6
Canada
2.6
Israel
2.6
Norway
3.1
Angola
4.0
Nigeria
4.2
0.0
0.5
1.0
Undiscounted State Take
Cash Flow $/bbl
1.5
2.0
Undiscounted Gov't Take
Investor's IRR
2.5
3.0
3.5
4.0
4.5
NPV @12.5% $/bbl
NVP @12.5% $mm
• Norway ranks third to last in the Peer Group countries and one hundred and second in the IHS PEPS Fiscal
Rating of 129 countries.
• Note: For this chart Undiscounted State Take was calculated taking into account the Peer Group countries’ fiscal terms selected
specifically for the fiscal benchmarking. However the overall Norway’s fiscal rating is the IHS PEPS Fiscal rating which is
calculated for the regime that represents most E&P activity in the country.
Source: IHS PEPS
© 2014 IHS
17
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
E&P Activity Rating vs Fiscal Rating
Higher score => lower attractiveness as perceived by investors
Lower
Attractiveness
Higher E&P
Attractiveness (<2.5),
but tougher fiscal terms
(>2.5)
Nigeria
Angola
Norway
Israel
2.5
Low E&P Attractiveness
(~5) and Fiscal
Attractiveness (>3), i.e.
Frontier exploration with
untested prospectivity and
more severe fiscal terms
C
Canada
Indonesia
Australia
Mozambique
United Kingdom
Brazil
Higher
Attractiveness
Fiscal Rating
5.0
United States
Low E&P Attractiveness
(~5) and Fiscal
Attractiveness (>3), i.e.
Frontier exploration with
untested prospectivity and
more severe fiscal terms
Average E&P score (just above
2.5) and more attractive fiscal
terms (around or below 2.5)
0.0
0.0
Higher Attractiveness
2.5
Lower Attractiveness
5.0
E&P Activity Rating
• Norway falls in the second attractive group of countries with high E&P attractiveness but tougher fiscal
terms.
Source: IHS PEPS
© 2014 IHS
18
Fiscal Developments and Watch-Points across the Peer
Countries
Canada
Newfoundland:
No recent
proposals
UK: Introduction
of HPHT field
allowances,
regular tweaks
through budget.
US offshore: Multi-year
debate on reduced
drilling allowances but
action blocked by
political impasse
Brazil First ever
PSA contract
awarded, Supreme
Court decision on
validity of new
royalty distribution
law still pending
Source: IHS Oil & Gas Risk Service
© 2014 IHS
Nigeria: 6th year
of discussion on
Petroleum
Industry Bill which
proposes
retroactive fiscal
changes.
Angola: occasional
dispute over contract
interpretation of
contracts. No new
proposals.
Norway
Passed: CO2 tax
Reduction of
uplift on capital
allowances.
Israel
Changes to gas
export policy,
2013.Current focus:
gas export tariff.
Mozambique
Gas legislation planned.
Fiscal terms under
review for new projects,
Australia
Plans for reduction in
corporate tax from mid2015 under a royalty/tax
framework
Indonesia
Cap on cost
recovery imposed
then withdrawn;
concern about
domestic supply
obligations
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Political Risks Benchmarking
20
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Macro Benchmarking – Overall Political, Economical, Legal,
Tax, Operation, Security Risk (PELTOS)
1-5 scale, 1.0 indicates minimum risk and 5.0 maximum risk
Norway and Peer Group PELTOS Overall Rating
Rank from lowest risk to highest
Canada (3)
1.40
Norway (7)
1.53
Australia (11)
1.58
United States (14)
1.60
United Kingdom (24)
Rating from 1.25 to
1.74 is classified as
Negligible
1.82
Israel (61)
2.28
Brazil (83)
2.66
Indonesia (91)
2.79
Mozambique (126)
3.20
Angola (162)
3.54
Nigeria (190)
4.00
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
Q2 2014
Risk score
• Norway ranks second best in the Peer Group countries and seventh in the overall PELTOS rating
of 207 countries
Source: IHS Country Risk Rating
© 2014 IHS
21
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Macro Benchmarking – Political Risk
1-5 scale, 1.0 indicates minimum risk and 5.0 maximum risk
Rank from lowest risk to highest
Norway and Peer Group Political Risk Rating
United States
1.50
Australia
1.50
Norway
1.50
Canada
1.50
United Kingdom
1.75
Rating from 1.25 to 1.74 is
classified as Negligible
Indonesia
2.50
Brazil
2.50
Israel
2.75
Mozambique
3.25
Angola
4.00
Nigeria
1.00
4.25
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
Q2 2014
Risk score
• Norway’s political risk is ranked third lowest in the Peer Group countries after USA and Australia.
• The Political score takes into account a country's institutional permanence, representativeness,
and internal and external political consensus
Source: IHS Country Risk Rating
© 2014 IHS
22
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Macro Benchmarking – Economic Risk
1-5 scale, 1.0 indicates minimum risk and 5.0 maximum risk
Norway and Peer Group Economic Risk
Australia
1.50
Rank from lowest risk to highest
United States
1.75
Norway
1.75
Canada
1.75
United Kingdom
2.00
Israel
Rating from 1.75 to 1.99
Is classified as Low
2.25
Brazil
2.50
Indonesia
2.75
Angola
3.25
Mozambique
3.25
Nigeria
1.00
3.50
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
Q2 2014
Risk score
• Norway’s economical risk is ranked third lowest in the Peer Group countries after Australia and USA.
• The Economic score takes into account a country's degree of market orientation, policy consistency
and forward planning, the economy's diversity and resilience, and macroeconomic fundamentals.
Source: IHS Country Risk Rating
© 2014 IHS
23
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Macro Benchmarking – Operational Risk
1-5 scale, 1.0 indicates minimum risk and 5.0 maximum risk
Rank from lowest risk to highest
Norway and Peer Group Operational Risk
United Kingdom
1.50
United States
1.50
Australia
1.50
Canada
1.50
Norway
Rating from 1.75 to 1.99
is classified as Low
1.75
Israel
2.00
Indonesia
3.00
Brazil
3.00
Angola
3.50
Mozambique
3.50
Nigeria
1.00
4.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
Q2 2014
Risk score
• Norway’s operational risk is ranked fifth in the Peer Group countries.
• The Operational score takes into account a country's attitude to foreign investment, infrastructural
quality, labour relations, and bureaucracy and corruption
Source: IHS Country Risk Rating
© 2014 IHS
24
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Oil & Gas Sector Benchmarking – Overall Oil and Gas Risk
Service Rating
1-10 scale, 10 indicates low risk and 1 high risk
Norway and Peer Group Overall OGRS Rating
Canada (2)
8.9
Rank from lowest to highest
Norway (3)
8.6
United States (5)
8.5
United Kingdom (6)
8.5
Australia (7)
8.5
Brazil (43)
6.6
Israel (48)
6.4
Angola (67)
5.9
Mozambique (68)
5.9
Indonesia (79)
This rating
corresponds
to low risk
5.6
Nigeria (128)
3.5
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
2014 Score
Risk score
•
Norway ranks second best in the Peer Group countries and third in the overall OGRS rating of 131
countries.
Source: IHS Oil & Gas Risk Service
© 2014 IHS
25
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Oil & Gas Sector Benchmarking – Export Risk
1-10 scale, 10 indicates low risk and 1 high risk
Norway and Peer Group Expert Risk
10
Norway
10
Rank from lowest to highest
United Kingdom
Canada
8
Australia
8
Brazil
7
Angola
7
United States
6
Mozambique
6
Israel
This rating
corresponds
to low risk
5
Indonesia
4
Nigeria
2
1
2
3
4
5
6
7
8
9
10
2014
Risk score
• Norway’s Export Risk is ranked first along with United Kingdom in the Peer Group
• The Export Risk score is an assessment of constraints on the export of hydrocarbon resources,
including physical infrastructure constraints, domestic and international political interference, and
security risks.
Source: IHS Oil & Gas Risk Service
© 2014 IHS
26
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Oil & Gas Sector Benchmarking – Sanctity of Contract
1-10 scale, 10 indicates low risk and 1 high risk
Rank from lowest to highest
Norway and Peer Group Sanctity of Contract
United States
10
Norway
10
Canada
10
Australia
10
United Kingdom
9
Brazil
9
Mozambique
8
Angola
8
Indonesia
6
Israel
This rating
corresponds to
the low risk
5
Nigeria
4
1
2
3
4
5
6
7
8
9
10
2014
Risk score
•
•
Norway’s Sanctity of Contract Risk is ranked first along with United State, Canada and Australia in
the Peer Group.
The Sanctity of Contract score measures the strength of a country's historical willingness to abide by
contractual agreements.
Source: IHS Oil & Gas Risk Service
© 2014 IHS
27
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Oil & Gas Sector Benchmarking – Ministerial/Policy Volatility
1-10 scale, 10 indicates low risk and 1 high risk
Norway and Peer Group Ministerial/Policy Volatility
Canada
10
Rank from lowest to highest
Norway
9
Brazil
8
Angola
8
United States
6
Israel
6
Australia
6
United Kingdom
5
Nigeria
5
Mozambique
5
Indonesia
5
1
2
3
4
5
2014
6
This rating
corresponds
to a low risk
7
8
9
10
Risk score
•
•
Norway’s Ministerial/Policy Volatility Risk is ranked second in the Peer Group.
The Ministerial/Policy Volatility score measures the risk to foreign operators of frequent or unpredictable
changes in government policies affecting the hydrocarbon sector and/or in the sector’s leadership.
Source: IHS Oil & Gas Risk Service
© 2014 IHS
28
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
CO2 Tax and Policy
Benchmarking
29
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
IHS Carbon Policy Index (CPI) benchmarks climate policy,
with higher scores indicative of more stringent regulations
IHS Carbon Policy Index heat map by country score — Summer 2014
CPI Scores
4.0 <= CPI <= 5.0
3.0 <= CPI <= 4.0
2.0 <= CPI <= 3.0
1.0 <= CPI <= 2.0
CPI <= 1.0
Sources: IHS Energy
© 2014 IHS
30
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
IHS Carbon Policy Index (CPI)
1-10scale,
scale,Maximum
10 indicates
riskisand
1 high risk
0-5
CPIlow
score
5.00
Carbon Policy Index ratings for country peer group by component and total
scores
Norway
United Kingdom
Denmark
Netherlands
USA
Mexico
China
Brazil
Canada
Australia
Indonesia
United Arab Emirates
Russia
Nigeria
Malaysia
Saudi Arabia
4.37
4.02
3.90
3.65
2.70
2.62
2.59
2.33
2.30
2.27
2.07
1.67
1.43
1.38
1.30
0.80
0
Ambition (25%)
•
0.5
Clarity (15%)
1
1.5
Scope (20%)
2
2.5
Emission (10%)
3
3.5
Governance (10%)
4
4.5
5
Priority (10%)
Norway stands out and ranks first when IHS benchmarks the relative stringency of national climate policy
environments
© 2014 IHS
31
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Norway’s overall climate policy index score tops this peer
group, with policy clarity, ambition and scope key drivers
Carbon Policy Index ratings for country peer group by component and total scores
Peer
Rating
Country Name
Clarity
1.
Norway
2.
Ambition
Carbon
Emissions
Governance
Policy
Scope
Prioritization
Total
4.58
4.50
3.60
3.96
4.50
4.50
4.37
United Kingdom
4.15
4.25
2.60
3.76
4.25
4.25
4.02
3.
Denmark
4.15
4.00
2.90
4.19
3.85
4.00
3.90
4.
Netherlands
4.15
4.00
1.30
4.01
3.75
3.75
3.65
5.
USA
3.09
2.75
1.20
3.62
3.10
2.25
2.70
6.
Mexico
3.09
2.75
2.20
2.27
2.60
2.50
2.62
7.
China
3.15
3.00
2.40
1.92
2.70
2.00
2.59
8.
Brazil
2.66
2.50
2.50
2.11
2.20
2.00
2.33
9.
Canada
2.66
2.00
0.90
3.90
2.85
1.75
2.30
10.
Australia
2.45
2.25
0.30
3.90
2.85
1.75
2.27
11.
Indonesia
2.45
2.25
2.50
1.73
1.85
1.75
2.07
12.
United Arab Emirates
2.03
1.50
0.60
3.11
1.60
1.50
1.67
13.
Russia
2.16
1.50
1.60
1.48
1.35
0.75
1.43
14.
Nigeria
1.39
1.00
5.00
1.20
0.75
0.75
1.38
15.
Malaysia
1.24
1.25
1.80
2.70
1.00
0.75
1.30
16.
Saudi Arabia
1.24
0.75
0.60
2.17
0.50
0.25
0.80
Source: IHS Energy
© 2014 IHS
32
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Norwegian carbon tax rates are higher than most carbonrelated charges in the peer group countries
Carbon prices in peer group countries May 2014 (2013US$/tCO2e)
Norway
4-69
Alberta
15
Quebec
3
Denmark
31
Quebec
10
UK
16
Chinese
Provinces**
British
Columbia
28
Netherlands
27-615
4-11
New England
States*
3
California
11
Mexico
1-4
Carbon markets
Market in effect
Market planned
Market and tax in effect
Australia
22
Carbon taxes
Tax in effect
Tax planned
40303-6_0613
* Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island and Vermont
** Beijing, Chongqing, Guangdong, Hubei, Shanghai, Shenzhen, Tianjin
Source: IHS using The Climate Group data
© 2014 IHS
© 2014 IHS
33
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
IHS Expert View
34
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Macro Political Risk
Expert View
Norway is overall politically and
operationally stable
• Norway compares favorably to the peer group
countries regarding Political, Economic and
Operational Risk.
• Recent developments affecting the oil and gas
industry have not led to changes in the overall
IHS Political or Operational Risk ratings of the
country.
• The Political Risk rating was last changed in Q4
2013 to reflect the change from a majority to a
minority government and concurrent reduction in
policy predictability and government stability.
• The Political Risk rating of 1.50 out of 5 is the
second-lowest rating in the world, and Norway
ranks 7th lowest in the world on the overall
PELTOS risk rating, at 1.53.
© 2014 IHS
35
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Macro Political Risk
Expert view (cont.)
© 2014 IHS
The government is positive towards new
oil and gas development
•
The centre-right coalition government that came to
power in October 2013 is generally favourable towards
increased oil and gas development and reductions in
taxes and regulations. Its platform commits it to review
the tax regime for the sector with a view to encourage
increased exploitation, but not to revise its
predecessor’s tax increases.
•
The government has so far been constrained by
working within the budgetary framework set by its
predecessor, prioritising election promises, and its lack
of a parliamentary majority.
•
The government’s intentions for the sector and ability to
implement its own policies will become clearer with the
presentation of the 2015 budget.
36
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Macro Political Risk
Expert view (cont.)
The parliamentary composition increases
policy unpredictability regarding
environmental policy
• The minority government’s reliance on one or
two of the Liberals and Christian Democrats for a
majority creates policy uncertainty, given these
parties’ more ambitious environmental policies.
• This was primarily reflected in the request for
power-from-land for Johan Sverdrup from 2022.
• The Green Party is actively working to create a
united “environmental opposition” of the five
smaller parliamentary parties, but this will
depend on Labour Party support for a majority.
• The Liberals and Christian Democrats are
unlikely to consistently side with the opposition,
but instead use the threat of doing so to extract
compromises from the government.
© 2014 IHS
37
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Macro Political Risk
Expert view (cont.)
The Labour Party is likely to become
gradually more “green”
• The Labour Party’s support for the Utsira High
electrification request and for pulling the
sovereign wealth fund out of carbon investment
indicate a move towards a “greener” profile.
• This is driven partly by the personal conviction of
its new leader, Jonas Gahr Støre, partly by the
gradual rise of a more environmentally-minded
generation of party politicians, and partly by
strategy – the Green Party’s rise has
demonstrated the voter appeal of green policies.
• In the current parliamentary period, an additional
driver of Labour policy will be the desire to inflict
defeats on the government.
• However, the party is still heavily influenced by
labour unions and a concern for what it deems
“responsible” economic policies, and is likely to
temper any “green” policies where these come
into direct conflict with job creation or industry
concerns.
© 2014 IHS
38
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Oil & Gas Sector
Risk Expert View
© 2014 IHS
There are few watch points for possible
changes in OGRS risk rating
•
Despite that Norway has a fairly demanding
fiscal and regulatory framework it has shown a
high degree of policy and regulatory stability
over the years – therefore it has a consistently
low risk score in terms of the hydrocarbon
sector.
•
The increased CO2 tax, reduction of uplift in
allowances are a concern but haven’t materially
changed IHS scores under the specific
categories of
hydrocarbon sector entry,
hydrocarbon sector shocks and hydrocarbon
sector operations. They however provide a
watch-point for future score changes if such
interventions are repeated and applied
retroactively – the specific scores of concern are
contract sanctity and
ministerial/policy
continuity.
39
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Oil & Gas Sector
Risk Expert View
(cont.)
© 2014 IHS
There are few watch points for possible
changes in OGRS risk rating
•
One particular watch-point which could result in a
downgrade in Norway’s score for the monetization of
resources (reflected in export risk) – is if
parliament repeats it’s attempt to intervene on field
development plans in a way which extends the timeline
for development (and with it, the costs).
The
compromise on Johan Sverdrup has been noted in this
regard, but the precedent provides a watch-point for
future action in this regard.
40
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Fiscal terms expert
view
© 2014 IHS
Fiscal Terms, Attractiveness and Fiscal
Risks
•
Norway ranks third to last in the Peer Group countries
and one hundred and second in the IHS PEPS Fiscal
Rating of 129 countries. However, Norway ranks third
best in the Peer Group countries and sixth in the IHS
PEPS E&P attractiveness rating of 129 countries.
•
As a result Norway falls in the second attractive group
of countries with high E&P attractiveness but tougher
fiscal terms.
•
IHS assessment of the risk of a retroactive change in
fiscal terms has actually been reduced as a result of the
changes as IHS see them less likely to be repeated in
the 1 year time horizon.
41
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
CO2 Tax and Policy
Expert View
© 2014 IHS
Norway has the world’s most stringent
climate policy framework in place today
•
Of the 80 countries regularly assessed by IHS
for their climate policy stringency, and of the 16
peer countries benchmarked for this study, Norway
ranks number one.
•
The key factors accounting for this rank are
Norway’s long-term climate policy ambition and
the scope of carbon regulations the government
has adopted across the economy to date.
•
Norway’s CO2 tax is the highest carbon tax
levied on the upstream oil and gas industry
within the group of countries covered by this
study.
•
The impact of the CO2 policy, as well as the
features of the broader climate policy
environment, create higher operational costs
and regulatory constraints that may temper the
appeal of new upstream investments.
42
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
CO2 Tax and Policy
Expert View (cont.)
© 2014 IHS
Norway’s aggressive long-term climate
policy goals make next steps in domestic
emissions reduction program higher cost
•
Norway’s policy mix has been notably effective at
reducing national carbon intensity over time and much
of the country’s low hanging emissions reduction fruit
has now been picked.
•
The commitment to carbon neutrality by 2050 points to
the need for the government to continue to expand and
direct climate regulations to secure further emissions
savings going forward.
•
At this stage in the country’s decarbonisation
programme, further emissions cuts from the Norwegian
offshore sector are likely to come at a particularly high
cost.
•
Alternative sources of emissions reductions in other
sectors of the Norwegian economy, including
manufacturing and transport, as well as the use of
carbon offsets, may be more cost effective.
43
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
IHS Assumptions and
Methodology
44
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
IHS Country Risk Methodology
•
IHS’s country risk-rating system enables clients to compare and contrast the investment climate in 207
countries around the world. The system separately rates the political, economic, legal, tax, operational,
and security environments in each country.
•
All 207 countries' overall Country Risk Ratings aggregate six component ratings—Political, Economic,
Legal, Tax, Operational, and Security. The principal quality these ratings are measuring is stability.
Additionally however, businesses require adequate conditions in the first place; governments must
ensure the right policies and safeguards are in place to allow businesses to operate effectively. A country
with a high risk rating is where businesses face continual threats to their operations, either from
direct physical intervention, or because of the poor underlying conditions and stability.
•
The Political Risk Rating assesses the overall framework of the country’s political situation—whether
the institutions are stable and democratic, whether the government is able to pursue its policy programme
without continual political deadlock, and whether the country’s political life is sufficiently settled and secure.
•
The Economic Risk Rating again looks at conditions and stability at the macro level—whether the
economy provides a secure market and base for investors, and whether the government’s policies are
beneficial or harmful.
•
The Operational Risk Rating looks directly at the conditions on the ground for businesses. It assesses
the bureaucratic and physical obstacles that businesses and their staff face in going about their work.
•
The Political, Economic and Operational ratings were chosen to give a more granular assessment of the
operating environment as well as the political and commercial challenges facing investors.
© 2014 IHS
45
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
IHS Country Risk Methodology (cont.)
•
Every country is given a risk rating of between 1 and 5 for each of the six factors (political, economic,
legal, tax, operational, and security); 1.0 indicates minimum risk and 5.0 maximum risk. The minimum
increment for risk ratings is 0.25. The overall country risk is then calculated by aggregating the six ratings
according to their individual weightings.
1.0 - 1.24
1.25 - 1.74
1.75 - 1.99
2.0 - 2.49
2.50 - 2.99
3.0 - 3.49
3.50 - 3.99
4.0 - 4.49
4.5 - 5.0
© 2014 IHS
Overall Risk Rating
Risk Description
Insignificant
Negligible
Low
Moderate
Medium
Significant
High
Very high
Extreme
46
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
IHS Oil & Gas Risk Service (OGRS) Methodology
•
The OGRS model consists of five categories: Politics, Economics, Hydrocarbon Sector Entry,
Hydrocarbon Sector Operations and Hydrocarbon Sector Shocks. Each category is in turn
comprised of several risk factors, which are accorded grades from “A” (lowest risk) to “F” (highest
risk). There are a total of 21 risk factors making up the five categories.
•
Each category comprising the model is the weighted average of the individual normalized factor
scores. In other words, each individual factor is ranked on a scale from 10 (corresponding to “A”) to 1
(corresponding to “F”), and these normalized scores are then weighted and summed to produce the
category score. The five category scores themselves are then weighted and summed to produce the
OGRS Overall Score.
•
To provide granularity, each individual factor’s letter grade is associated with a number that denotes
whether it is strong or weak within its given score range. For example, a score of 6 is given to a risk
factor that is a strong “C” based on the criteria for the grade – that is, it is likely to move up to a “B”
score or is more resilient compared to how that risk factor is scored for peer countries.
Rankings
•
A: 10, 9
B: 8, 7
C: 6, 5
D: 4, 3
F: 2, 1
© 2014 IHS
47
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Oil & Gas Risk Service (OGRS) – Ratings Model
Total OGRS Score
Country Politics (20%)
Country Economics (20%)
Hydrocarbon Sector Entry (20%)
Hydrocarbon Sector Operations (25%)
Hydrocarbon Sector Shocks (15%)
Country Politics (20%)
State Capacity (25%)
Political Legitimacy (25%)
Political Violence (25%)
Geopolitical Risk (25%)
Hydrocarbon Sector
Operations (25%)
Sanctity of Contract (25%)
Regulatory Burden (25%)
Civil Society Risk (20%)
Corruption (15%)
Rule of Law (15%)
Country Economics (20%)
Transfer Risk (35%)
Primary Fiscal Balance (25%)
Real Per Capita GDP Growth (25%)
Level of Development (15%)
Hydrocarbon Sector Entry (20%)
Hydrocarbon Sector Shocks (15%)
International Openness (30%)
Government Take (30%)
Expeditiousness of Contract (20%)
State/NOC Role (20%)
Export Risk (30%)
Facility and Personnel Violence (30%)
Ministerial/Policy Volatility (25%)
Labor Unrest (15%)
© 2014 IHS
48
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
Oil & Gas Risk Service (OGRS) – Selected Risk Factors
MINISTERIAL/POLICY VOLATILITY: The Ministerial/Policy Volatility score measures the risk to foreign operators of frequent or
unpredictable changes in government policies affecting the hydrocarbon sector and/or in the sector’s leadership. Shifts in the
content or direction of policy usually (but not always) stem from changes in the government itself or from changes in
leadership at the Energy Ministry and/or the national oil company. Shifts in policy – especially when made abruptly – pose
the most risk to foreign operators, compared to changes in leadership that do not alter policy (at times, because the new
figure placed at the helm of the energy sector management does not have real authority).
EXPORT RISK: The Export Risk score is an assessment of constraints on the export of hydrocarbon resources. Scores are
determined by considering several factors: physical infrastructure constraints (such as pipeline capacity); domestic or external
political interference over export infrastructure or policy measures that favor domestic uses of energy over exports; security
risks including piracy, vandalism or terrorism; the risk of international sanctions that directly or indirectly restrict hydrocarbon
exports; and the potential for production cuts in coordination with OPEC’s informal market management strategy.
SANCTITY OF CONTRACT: Sanctity of Contract refers to a broad range of issues relating to a government's treatment of its
contractual obligations. At one extreme, this may involve the outright repudiation of property rights in the form of
nationalization of an industry or expropriation of a company's assets. In a less severe form, often referred to as “creeping
expropriation,” a government may seek to renegotiate terms and conditions, or to impose new terms and conditions
retroactively. Contract frustration - whether deliberate or the result of excessive bureaucracy - can also undermine the sanctity
of a written contract.
These risk factors were selected for OGRS benchmarking as:
• ministerial/contract volatility factor reflects how stable the country's energy policy and consistency between administrations;
• expert risk factor best reflects risks relating to monetization of assets ( e.g. recent interventions on field development plans
(Johann Sverdrup);
• sanctity of contracts factor best reflect the impact that retroactive changes in contracts (CO2 tax, reduced uplift) - and how
Norway compared on contract changes to other countries.
© 2014 IHS
49
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
IHS PEPS Methodology – fiscal benchmarking methodology
•
To gain better understanding of petroleum fiscal regimes around the world, IHS evaluates their economic impact on a wide
range of hypothetical oil and gas projects, using fiscal ranking methodology. Analysis is done on a consistent basis with the
only variable being the fiscal regimes themselves. The analysis is intended to allow the comparison of petroleum fiscal
regimes around the world as they apply generally to upstream oil and gas projects (rather than model any particular known
field developments themselves).
•
Number crunching is done in IHS proprietary software called A$SET – IHS economic evaluation software. Results, as well
as summary of fiscal regimes and terms, are stored in the database called IHS PEPS.
Fiscal Benchmarking assumptions:
•
Assumptions are made in the following categories:
•
Oil and gas field reserves size (volume of recoverable reserves)
•
E&A, development and operating costs
•
Oil and gas prices
•
Inflation rate of 3% per annum is applied to costs and prices. Cashflows are discounted at 12.5% nominal discount rate.
•
This fiscal analysis methodology is intended to allow the comparison of upstream petroleum fiscal regimes around the world,
rather than model any particular known field developments themselves.
•
While the assumptions are, therefore, simplifications of real-life scenarios, they present a wide distribution of possible
outcomes from new exploration projects, thus enabling a consistent comparison of the overall impact of each fiscal regime.
© 2014 IHS
50
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
IHS PEPS Methodology – fiscal benchmarking methodology
1.
The approach assumes 6 reserves sizes for each of oil and gas (a total of 12 sizes), ranging from Very Small to Giant:
Oil Fields (MMbbl): 10, 25, 50, 100, 250, 750
Gas Fields (Bcf): 60, 150, 300, 600, 1,500, 4,500
2.
Each hypothetical field is developed under 3 different cost scenarios (low, medium (or base), and high)
Low and high costs are calculated as Base case unit of production development cost less 50% and plus 50%
respectively
3.
Each development is produced at 3 different price scenarios (low, medium, high)
Oil Prices: Low case = $50/bbl; Base Case = $75/bbl; High case = $100/bbl
Gas Prices: Low Case = $4/mcf; Base Case = $6/mcf; High Case = $8/mcf
Prices are the same regardless of country/regime
4.
Hence, a total of 108 development scenarios are modelled: 12 field sizes x 3 cost scenarios x 3 price scenarios (54 for oil and 54 for gas),
allowing the user to select any combination of the field size/cost/price.
5.
Fields are assumed to have only one primary product stream – either crude oil or non-associated natural gas. The location of a field
(onshore/offshore) is not specified.
6.
No economic limit is assumed, i.e. all fields produce their recoverable reserves, even if this means negative annual cashflow towards the end of
project life – this ensures the full economic impact of each fiscal regime is properly reflected in the analysis.
© 2014 IHS
51
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
IHS PEPS Methodology – fiscal benchmarking
methodology
The 108 hypothetic developments are assessed on Gross Project level and classified into “marginal”,
“economic” or “upside” based on Gross Project economics
The Gross Project Cash Flow is defined as follows:
Gross Project Cash Flow = Gross Revenue - Gross Operating Costs - Gross E&A Costs - Gross Development Costs
Note: Gross Project means before any state participation and/or fiscal term is applied.
Illustrative Summary Results (Oil)
Field Group
32
Upside
fields (16 oil
and 16 gas)
1 Upside
2 Upside
3 Upside
…
14
15
16
1
2
3
32
Economic
fields (16 oil
and 16 gas)
…
32
Marginal
fields (16 oil
and 16 gas)
…
12 Uneconomic
fields (6 gas and 6
oil) with negative
or lowest Gross
Project NPV per
UOP are excluded
from the analysis
of average State
Take figures
© 2014 IHS
14
15
16
1
2
3
14
15
16
1
2
3
4
5
6
…
Upside
Upside
Upside
Economic
Economic
Economic
…
Economic
Economic
Economic
Marginal
Marginal
Marginal
…
Marginal
Marginal
Marginal
Uneconomic
Uneconomic
Uneconomic
Uneconomic
Uneconomic
Uneconomic
Field Size MMbbl
Cost Category
Dev. Cost $/unit
Price $/unit
Gross Project NPV@
12.5% $/unit
10.00
25.00
10.00
LOW
LOW
MEDIUM
5.00
4.50
10.00
100.00
100.00
100.00
52.91
47.70
47.58
…
…
…
…
…
10.00
250.00
50.00
100.00
25.00
250.00
MEDIUM
LOW
LOW
HIGH
MEDIUM
MEDIUM
10.00
3.00
4.00
10.50
9.00
6.00
75.00
100.00
75.00
100.00
75.00
100.00
32.73
31.38
31.33
31.08
29.68
28.69
…
…
…
…
…
250.00
750.00
25.00
100.00
250.00
750.00
LOW
HIGH
LOW
HIGH
MEDIUM
LOW
3.00
7.50
4.50
10.50
6.00
2.50
75.00
100.00
50.00
75.00
75.00
75.00
22.69
22.45
20.99
20.54
20.00
19.40
…
…
…
…
…
10.00
750.00
25.00
250.00
50.00
100.00
750.00
250.00
750.00
HIGH
LOW
HIGH
MEDIUM
HIGH
HIGH
MEDIUM
HIGH
HIGH
15.00
2.50
13.50
6.00
12.00
10.50
5.00
9.00
7.50
50.00
50.00
50.00
50.00
50.00
50.00
50.00
50.00
50.00
12.55
12.01
11.66
11.31
10.80
10.00
9.84
8.62
7.67
Average
econom
ic
indicato
rs
across
96 fields
(48 oil
and 48
gas) are
included
in the
State
Take
analysis
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
IHS PEPS Ratings and Rankings Methodology
• PEPS Ratings and Rankings methodology enables to rank a country by overall E&P risk. It is composed of approximately 50
variables. Each variable is assigned a rating in the range 0 to 5 (where zero is the best score) and this is then weighted. For detailed
methodology please refer to the Appendix.
• The PEPS Ratings and Rankings Index (RRI) consists of three indices (E&P Activity, Fiscal Terms, Political Risk) that are designed to
allow an overall assessment of E&P risk that affects a particular country’s comparative attractiveness for petroleum investment. Only
E&P and Fiscal Rating was used for this project, since political risks were assessed through IHS country risk and OGRS
E&P activity,
50%
Fiscal Terms,
35%
Political Risk
15%
Production, 10%
Undiscounted State Take @0%, 5%
Political Risks, 60%
Oil, 60%
Gas, 40%
War & External Threats, 10%
Civil & Labor Unrest, 25%
Reserves, 10%
Oil, 60%
Investor NPV ($/bbl ), 20%
Internal Violence, 35%
Investor Net Cash Flow ($/bbl) ), 5%
Regime Instability, 30%
Investor IRR, 20%
Socio-Economic Risks, 20%
Gas, 40%
Activity, 10%
NFW, 50%
New Licences, 25%
Active Companies, 25%
Success, 70%
Investor NPV ($mm), 10%
Investor P/I Ratio, 30%
Marginal, 35%
Economic, 45%
Gas added, 15%
Upside, 20%
Added/NFW
Economic Instability, 25%
Energy Vulnerability, 20%
Investor NPV ($mm), 5%
Oil added, 20%
Success Rate
© 2014 IHS
Undiscounted Gov.Take @ 0%, 5%
Environmental Activism, 30%
Ethno-Linguistic Factionalism, 25%
Commercial Petroleum Risks, 20%
Variables and weightings
Variables and weightings
Composite Ratings & Rankings (RRI) Index
Opposition to Foreign Investment, 35%
Repatriation/Convertibility Restrictions, 25%
Threat of Adverse Contract/Fiscal Changes, 40%
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BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
IHS CPI methodology
 The Carbon Policy Index (CPI) benchmarks the orientation and extent of energy-related national climate change mitigation policies.* This
benchmarking framework, currently covering a total of approximately 80 countries worldwide, enables the consistent assessment of current and
future exposure of oil and gas companies to regulatory constraints on GHG emissions in their upstream, refining, and marketing operations.
National carbon policy benchmarking scores are assigned on a scale of 0.0-5.0, with higher scores representing more demanding carbon policy
positions and more stringent regulatory constraints on carbon.
 Current CPI: This is based on the current status of climate policy and carbon regulation, and is comprised of six components – Ambition,
Clarity of Policy, Policy Scope, Carbon Emissions, Governance, and Climate Prioritization. Each component addresses a specific question that
feeds into the overall assessment of the carbon policy context and the relative stringency of national carbon regulatory frameworks. Ratings
are based on country policy research to examine national climate change policy frameworks and specific policy measures for emissions
reduction. The six components of the Current CPI answer the following questions:
How ambitious is
carbon policy?
How clear is the
medium- to longterm direction of
carbon policy?
How extensive is
the scope of
regulatory
constraints on
carbon
emissions?
What is the trend
in carbon
emissions relative
to the scale of the
population, the
national
economy, and
national energy
consumption?
How credible is
government
commitment to
carbon policy
objectives?
To what extent, if
at all, are carbon
policy objectives
balanced against
competing
priorities of
energy security
and economic
growth?
 Future CPI: Building on the Current CPI and factoring in anticipated developments in a given country’s climate change policy framework and
regulatory measures, each country is assigned a Future CPI score. Like the Current CPI, this is expressed on a scale of 0.0-5.0, with higher
scores indicating more stringent carbon regulatory operating environments. The Future CPI serves as a directional indicator reflecting
expectations over a relatively short-term time frame of three to seven years.
 National Future CPI scores are associated with one of five possible Carbon Policy Outlook Classes:
NO CONSTRAINTS
ANTICIPATED
DECLINING
CONSTRAINTS
STABLE TRAJECTORY
INTENSIFYING
CONSTRAINTS
STEP CHANGE AHEAD
* The CPI methodology does not take into account GHG mitigation policies and measures that relate to land use, land use change, and/or climate change adaptation.
© 2014 IHS
54
BENCHMARKING NORWAY’S INVESTMENT ATTRACTIVENESS/ JUNE 2014
CPI — Component weightings
(25%)
Definition of and commitment to
challenging climate change mitigation
policy (100%)
Clarity
Visibility on future climate change
policy direction (85%)
Ambition
(15%)
Policy scope
(20%)
Carbon
Policy Index
Score
Emergence of policy focus on
climate change mitigation (15%)
Sectoral coverage (60%)
Range of policy tools (40%)
CO2 per capita (40%)
CO2 emissions
(10%)
5-year trend in CO2 intensity
of GDP (30%)
CO2 intensity of TPES (30%)
Government effectiveness (40%)
Governance
(10%)
Regulatory quality (30%)
Control of corruption (30%)
Prioritization
(20%)
© 2014 IHS
Demonstrated motivation to prioritize
carbon emission reduction (100%)
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