Dr Carole Nakhle, CEO of Crystol Energy, and Dr Theophilus Acheampong, Senior Consultant at Crystol Energy, analyze whether oil and gas host governments might revisit their upstream fiscal regimes following the coronavirus pandemic and, if they do, what measures they might adopt in the shorter term.
This article is part of the series, “Post-COVID-19: How Governments Should Respond to Fiscal Challenges to Spur Economic Recovery,” coordinated by the International Tax and Investment Center (ITIC) to offer tax policy guidance to developing countries during the post-pandemic recovery phase.
The coronavirus (COVID-19) pandemic and subsequent “Great Lockdown” have profoundly disrupted the oil and gas industry, causing a collapse in prices and slashing of investment spending across the sector. Because of the severity of the crisis, some oil companies requested direct government bailout — wrongly in the authors’ view — while others hoped for a relaxation of the fiscal terms.
The objective of this paper is to analyze whether host governments might revisit their upstream fiscal regime following the crisis, and if they do, what measures they are likely to adopt in the more immediate term. The list of factors that drive fiscal changes is long; the analysis carried out in this paper focuses on three common and interrelated key drivers — namely oil price, investment trend, and production performance. For illustrative purposes, the paper studies 10 major offshore provinces both in the OECD and emerging markets, which are considered directly competing for international capital. These provinces share similar commercial and technical challenges but government fiscal responses tend to differ, depending on several factors, including the way the fiscal regime is designed, health of the industry before the crisis, and degree of economic dependence on oil revenues.