We use GEM to validate the success of the Dutch fiscal model in encouraging the development of marginal offshore gas fields.
Since the oil price collapse, there has been increasing discussion regarding how to incentivise developments that have been deemed marginal or uneconomic. Fiscal allowances have been mentioned by stakeholders across the North Sea, while the UK is seeking a more standardised approach.
Governments need only look to the Netherlands to find a working model. To encourage the development of marginal offshore gas fields, the Dutch government implemented the Marginal Field Tax (MFT) for fields and prospects in 2010.
Our analysis of 16 projects reveals the MFT to be a success when measured against the government's goal to add 21 bcm of gas and €685 million in state revenue at an oil price of US$50 per barrel or €2,575 million at US$100 per barrel.
Between 2011 and 2028, we forecast these projects will add 17 bcm of additional reserves. Although falling short of the desired 21 bcm, they add 10% to Dutch reserves (excluding the giant Groningen field), over €700 million in value to companies and €825 million in direct government take.
Using GEM, we can see the effects of the tax are different under various price scenarios. At US$50/bbl, government take exceeds its €685 million objective from marginal fields by nearly 28%. However, at $100/bbl, the government take is 36% lower than its €2,575 million target.
With the MFT applied, value is transferred from government to companies in order to improve economics and make the projects attractive enough to invest in - clearing company hurdle rates which are typically between 10% and 15%.
The success of the Netherlands in creating significant value for the state and operators indicates that similar models could be utilised in other mature oil and gas regions where projects face profitability hurdles.
Fiscal incentives for marginal fields: the Dutch model [Subscription required]
GEM, our Global Economic Model, is at the very heart of our upstream research. Its precise transparent data and field models cover more than 6, 487 assets, 2132 companies and 6,040 tax markers across 236 fiscal regimes, ensuring seamless consistency across our analysis.
Our Fiscal Service is informed by this data and provides comprehensive benchmarking for over 150 petroleum fiscal system. It helps you review existing fiscal terms and negotiate appropriate terms for new investment opportunities.
To discover more, register your interest and we will contact you.