Investigating the Effects of Pricing Mechanism of Rich Gas on the Take of the Parties in the Development Contract of Phase 11 of South Pars

Abstract

The contract for the development of phase 11 of South Pars has been signed by a consortium of Total in France with a share of (51%), CNPC in China (30%), and Petropars Iran (19.9%) in July 2017. By using a comprehensive and accurate model designed in this research, all the aspects of the mentioned project, including technical issues, production profile, gas price, project costs, and project revenues were evaluated financially and economically with the consideration of the fiscal and economic components of the development contract in the dynamic manner. Finally, regarding the results, executive suggestions were stated in order to improve the fiscal regime of the contract. According to the findings, the fiscal regime of the contract is so-called regressive and the revenue increase or decrease has no effect on the contractor’s profitability. The most significant drawback of the contract is the pricing mechanism of the produced gas, causing a false price followed by an overestimate of the project’s profit and underestimate of the contractor's take and creating an implicit obligation for repaying the contractor’s dues from their revenues of other hydrocarbon fields of the country in the case of petroleum and gas condensate price drop. The results show that during rich gas pricing, in the case of realistic pricing of the produced gas, the foreign contractor's discounted take would increase from 6% to 27%, and on the opposite side, the government's take would decrease from 92% to 67%.

Keywords

• iran petroleum contract (ipc)
• total
• fiscal term
• gas pricing