KEN KASRIEL is a Senior Petroleum Economist with RPS Energy, London. He has 18 years of experience in petroleum finance. He has performed numerous upstream petroleum valuations of assets in Africa, Asia, Europe, the Former Soviet Union, the Middle East and North America. His valuations and analyses have been used in public offerings, annual reports and other regulatory filings in various jurisdictions; and for the purposes of project financing, bid rounds, transaction valuation, portfolio optimization, expert witness support in commercial arbitration, and governmental fiscal design advisory. Before joining RPS Energy he worked 7 years as Senior Analyst for the Global Petroleum practice of PriceWaterhouseCoopers. He has also worked as an oil and gas equities analyst with Robert Flemings Securities (now part of JPMorganChase) and Creditanstalt Investment Bank (now part of BankAustria), and as an independent consultant to London-based oil and gas equity research teams. He has written on petroleum economics in the Oil and Gas Journal. His email is ken_kasriel@yahoo.com.DR. DAVID WOOD has over 30 years of energy industry experience, mainly in petroleum, spanning technical and commercial exploration and production operations, mid- and downstream projects, and contract evaluation. His early energy industry experience includes Phillips Petroleum, Amoco (Africa, Europe and UK), and Lundin Oil (South America, Africa, Middle and Far East). From 1993-98 he was UK Managing Director for a portfolio of North Sea and onshore UK oil and gas assets. Since 1998 he has worked as an independent consultant, training provider and expert witness. He runs an oil and gas consulting company, DWA Energy Limited. He has published on energy related topics including: performance modeling of fiscal designs, petroleum economics and risk analysis, enterprise risk and portfolio management, LNG, GTL, gas storage and supply, deepwater E&P techniques, corporate performance, M&A, negotiations and project management. He has provided fiscal design advice to organizations including the Alaskan Legislature and the Yemen Government. He is involved in professional training, research, publication and development programs and is the assistant editor-in-chief of the Journal of Natural Gas Science & Engineering. He has designed and taught online training courses including oil and gas MBA programs. His email is dw@dwasolutions.com and website is www.dwasolutions.com

Select Guide Rating

• Introduction xiAcknowledgements xvi1 Introduction to Tax and Royalty Regimes 11.1 Introduction 31.2 Inflation and Discounting: Time Value of Money Basics in the Context of Upstream Petroleum Modeling 51.3 Introducing Basic Components of Upstream Petroleum Cashflow Under a Simple Tax and Royalty Regime 161.4 Another (Important) Multiplier – Introduction to Modeling Commercial Behavior with the Economic Limit Test 201.5 Chapter Model Housekeeping Notes 251.6 Chapter Model Assumptions 271.6.1 Assumptions: General Remarks 271.6.2 Assumptions: Time and the Time Value of Money 281.6.3 Assumptions: Commodity Prices 291.6.4 Assumptions: Production Profile 341.6.5 Assumptions: Capex 341.6.6 Assumptions: Opex 361.6.7 Assumptions: Abandonment 371.6.8 Assumptions: Royalty 381.6.9 Assumptions: Rentals 391.6.10 Assumptions: Bonuses 401.6.11 Assumptions: Income Tax and Related Items 421.7 Pre-ELT Calculations 451.7.1 Pre-ELT Calculations: Opex and Capex Timing/Inflation 451.7.2 Pre-ELT Calculations: Bonus and Rentals 471.7.3 Pre-ELT Calculations: GOCF 481.8 ELT Calculation and Role in Economic Modeling 491.9 Post-ELT Calculations 601.9.1 Post-ELT Calculations: Abandonment 601.9.2 Post-ELT Calculations: Depreciation 621.9.3 Income Tax: Basic Concepts and Calculations 631.9.4 Returning to Main Model – Post-ELT Calculations: Income Tax 741.9.5 Post-ELT Calculations: NCF and Discounting 801.9.6 Post-ELT Calculations: Financial Metrics 831.9.7 Post-ELT Calculations: Volumetric Outcomes 861.10 Multivariable Sensitivity Analysis Using a Two-Way Data Table 891.11 The ELT – Questions to Consider 891.12 Review Exercise: Key Calculations 892 Tax Consolidation and Incremental Value 912.1 Tom and Carmen Mix Love and Money: A Romantic Introduction to Fiscal Consolidation 932.2 Petroleum Tax and Royalty Regimes: “Ringfencing” vs. Consolidation 952.3 Ringfencing, Consolidation and Incremental Value 962.4 Ringfenced vs. Consolidated Incremental Value Model: Assumptions 992.5 Ringfenced vs. Consolidated Incremental Value Model: Calculations 1022.6 Model Results and Analysis 1052.7 Exercise – Try Modeling Scenario 2 Yourself 1072.8 Income Tax Consolidation and Incremental Value (Interactive Analysis) 1083 Royalties 1093.1 Introduction 1113.2 Royalty Based on Commodity Prices 1133.3 Royalty Based on Length of Production 1193.4 Royalty Based on Period-End Cumulative Production 1223.5 Royalty Based on Cumulative Production Throughout the Period 1253.6 Royalty Rates Based on the Production Rate 1433.7 Royalty Based on Price and Production Rates (Version 1) 1543.8 Royalty Based on Price and Production Rates (Version 2 – Based on Canada’s New Royalty Framework) 1603.9 Royalty Based on a Measure of Cumulative Profitability: The “R-factor” 1603.10 Royalty Based on a Measure of Cumulative Profitability and Commodity Prices – Canadian Oil Sands 1664 Bonuses 1674.1 Introduction 1694.2 Commerciality Bonuses 1704.3 Bonuses Payable at First Commercial Production 1734.4 Cumulative Production Bonuses 1734.5 Bonuses Based on the Cumulative Value of Production 1784.6 Bonuses Based on the Production Rate for a Specified Period 1785 Abandonment 1895.1 Introduction 1915.2 Lumpsum Abandonment Payments 1925.3 Equal Abandonment Contributions Made Over the Production Period 1945.4 Unequal Abandonment Contributions, Based on Annual Production as a Percentage of Ultimate Production 1995.5 Equal Abandonment Contributions, Starting when Depletion Reaches a Specified Threshold 2005.6 Equal Abandonment Contributions Starting from a Specified Number of Periods Before Economic Production Ends 2035.7 Equal Abandonment Contributions Starting when the Producer Chooses 2045.8 Multiple Methods, Using Whichever One Makes Abandonment Contributions Start Earlier 2065.9 Abandonment Contributions which Earn Interest (Single Rate) 2065.10 Abandonment Contributions which Earn Interest (Variable Rates) 2116 Introduction to Production Sharing Contract-Based Fiscal Regimes 2136.1 Overview: PSCs as a Specialized Revenue Sharing Framework 2156.2 Looking Ahead: Road Map for This and the Next Chapters 2176.3 Simple Example of PSC Revenue Distribution 2186.4 Simplistic (Single-Year) Model Revenue Distribution Calculations, Including Cost Oil Determination 2206.5 Introducing “Entitlement Volumes” 2296.6 Simplistic, Multi-Period PSC Model: The Calculation of Cost Oil 2346.7 Topic in Depth: Contractor Entitlement 2427 More Realistic PSC Modeling 2437.1 Introducing a More Realistic PSC Model 2457.2 Arriving at Our “Core” PSC Model 2617.3 “Uplifts” to Cost Oil 2658 PSC Regime Variations 2738.1 PSCs with Explicit Income Tax Provisions 2758.2 Profit Oil Sharing Based on Commodity Prices 2888.3 Profit Oil Sharing Based on the Production Rate 3088.4 Profit Oil Sharing Based on Cumulative Production 3188.5 Introduction to Profit Sharing Based on a Measure of Cumulative Profitability: The “R-factor” 3278.6 R-factors and the “Gold Plating” Effect 341Appendices (Available on Disk)Appendix I: DepreciationAppendix II: Tax Loss CarrybacksAppendix III: Time-Limited Tax Loss CarryforwardsAppendix IV: Knowing when to Quit: An Alternative Economic Limit Test MethodAppendix V: Introduction to Probability and Crystal BallIndex 345

KEN KASRIEL is a Senior Petroleum Economist with RPS Energy, London. He has 18 years of experience in petroleum finance. He has performed numerous upstream petroleum valuations of assets in Africa, Asia, Europe, the Former Soviet Union, the Middle East and North America. His valuations and analyses have been used in public offerings, annual reports and other regulatory filings in various jurisdictions; and for the purposes of project financing, bid rounds, transaction valuation, portfolio optimization, expert witness support in commercial arbitration, and governmental fiscal design advisory. Before joining RPS Energy he worked 7 years as Senior Analyst for the Global Petroleum practice of PriceWaterhouseCoopers. He has also worked as an oil and gas equities analyst with Robert Flemings Securities (now part of JPMorganChase) and Creditanstalt Investment Bank (now part of BankAustria), and as an independent consultant to London-based oil and gas equity research teams. He has written on petroleum economics in the Oil and Gas Journal. His email is ken_kasriel@yahoo.com.DR. DAVID WOOD has over 30 years of energy industry experience, mainly in petroleum, spanning technical and commercial exploration and production operations, mid- and downstream projects, and contract evaluation. His early energy industry experience includes Phillips Petroleum, Amoco (Africa, Europe and UK), and Lundin Oil (South America, Africa, Middle and Far East). From 1993-98 he was UK Managing Director for a portfolio of North Sea and onshore UK oil and gas assets. Since 1998 he has worked as an independent consultant, training provider and expert witness. He runs an oil and gas consulting company, DWA Energy Limited. He has published on energy related topics including: performance modeling of fiscal designs, petroleum economics and risk analysis, enterprise risk and portfolio management, LNG, GTL, gas storage and supply, deepwater E&P techniques, corporate performance, M&A, negotiations and project management. He has provided fiscal design advice to organizations including the Alaskan Legislature and the Yemen Government. He is involved in professional training, research, publication and development programs and is the assistant editor-in-chief of the Journal of Natural Gas Science & Engineering. He has designed and taught online training courses including oil and gas MBA programs. His email is dw@dwasolutions.com and website is www.dwasolutions.com

Select Guide Rating

• Introduction xiAcknowledgements xvi1 Introduction to Tax and Royalty Regimes 11.1 Introduction 31.2 Inflation and Discounting: Time Value of Money Basics in the Context of Upstream Petroleum Modeling 51.3 Introducing Basic Components of Upstream Petroleum Cashflow Under a Simple Tax and Royalty Regime 161.4 Another (Important) Multiplier – Introduction to Modeling Commercial Behavior with the Economic Limit Test 201.5 Chapter Model Housekeeping Notes 251.6 Chapter Model Assumptions 271.6.1 Assumptions: General Remarks 271.6.2 Assumptions: Time and the Time Value of Money 281.6.3 Assumptions: Commodity Prices 291.6.4 Assumptions: Production Profile 341.6.5 Assumptions: Capex 341.6.6 Assumptions: Opex 361.6.7 Assumptions: Abandonment 371.6.8 Assumptions: Royalty 381.6.9 Assumptions: Rentals 391.6.10 Assumptions: Bonuses 401.6.11 Assumptions: Income Tax and Related Items 421.7 Pre-ELT Calculations 451.7.1 Pre-ELT Calculations: Opex and Capex Timing/Inflation 451.7.2 Pre-ELT Calculations: Bonus and Rentals 471.7.3 Pre-ELT Calculations: GOCF 481.8 ELT Calculation and Role in Economic Modeling 491.9 Post-ELT Calculations 601.9.1 Post-ELT Calculations: Abandonment 601.9.2 Post-ELT Calculations: Depreciation 621.9.3 Income Tax: Basic Concepts and Calculations 631.9.4 Returning to Main Model – Post-ELT Calculations: Income Tax 741.9.5 Post-ELT Calculations: NCF and Discounting 801.9.6 Post-ELT Calculations: Financial Metrics 831.9.7 Post-ELT Calculations: Volumetric Outcomes 861.10 Multivariable Sensitivity Analysis Using a Two-Way Data Table 891.11 The ELT – Questions to Consider 891.12 Review Exercise: Key Calculations 892 Tax Consolidation and Incremental Value 912.1 Tom and Carmen Mix Love and Money: A Romantic Introduction to Fiscal Consolidation 932.2 Petroleum Tax and Royalty Regimes: “Ringfencing” vs. Consolidation 952.3 Ringfencing, Consolidation and Incremental Value 962.4 Ringfenced vs. Consolidated Incremental Value Model: Assumptions 992.5 Ringfenced vs. Consolidated Incremental Value Model: Calculations 1022.6 Model Results and Analysis 1052.7 Exercise – Try Modeling Scenario 2 Yourself 1072.8 Income Tax Consolidation and Incremental Value (Interactive Analysis) 1083 Royalties 1093.1 Introduction 1113.2 Royalty Based on Commodity Prices 1133.3 Royalty Based on Length of Production 1193.4 Royalty Based on Period-End Cumulative Production 1223.5 Royalty Based on Cumulative Production Throughout the Period 1253.6 Royalty Rates Based on the Production Rate 1433.7 Royalty Based on Price and Production Rates (Version 1) 1543.8 Royalty Based on Price and Production Rates (Version 2 – Based on Canada’s New Royalty Framework) 1603.9 Royalty Based on a Measure of Cumulative Profitability: The “R-factor” 1603.10 Royalty Based on a Measure of Cumulative Profitability and Commodity Prices – Canadian Oil Sands 1664 Bonuses 1674.1 Introduction 1694.2 Commerciality Bonuses 1704.3 Bonuses Payable at First Commercial Production 1734.4 Cumulative Production Bonuses 1734.5 Bonuses Based on the Cumulative Value of Production 1784.6 Bonuses Based on the Production Rate for a Specified Period 1785 Abandonment 1895.1 Introduction 1915.2 Lumpsum Abandonment Payments 1925.3 Equal Abandonment Contributions Made Over the Production Period 1945.4 Unequal Abandonment Contributions, Based on Annual Production as a Percentage of Ultimate Production 1995.5 Equal Abandonment Contributions, Starting when Depletion Reaches a Specified Threshold 2005.6 Equal Abandonment Contributions Starting from a Specified Number of Periods Before Economic Production Ends 2035.7 Equal Abandonment Contributions Starting when the Producer Chooses 2045.8 Multiple Methods, Using Whichever One Makes Abandonment Contributions Start Earlier 2065.9 Abandonment Contributions which Earn Interest (Single Rate) 2065.10 Abandonment Contributions which Earn Interest (Variable Rates) 2116 Introduction to Production Sharing Contract-Based Fiscal Regimes 2136.1 Overview: PSCs as a Specialized Revenue Sharing Framework 2156.2 Looking Ahead: Road Map for This and the Next Chapters 2176.3 Simple Example of PSC Revenue Distribution 2186.4 Simplistic (Single-Year) Model Revenue Distribution Calculations, Including Cost Oil Determination 2206.5 Introducing “Entitlement Volumes” 2296.6 Simplistic, Multi-Period PSC Model: The Calculation of Cost Oil 2346.7 Topic in Depth: Contractor Entitlement 2427 More Realistic PSC Modeling 2437.1 Introducing a More Realistic PSC Model 2457.2 Arriving at Our “Core” PSC Model 2617.3 “Uplifts” to Cost Oil 2658 PSC Regime Variations 2738.1 PSCs with Explicit Income Tax Provisions 2758.2 Profit Oil Sharing Based on Commodity Prices 2888.3 Profit Oil Sharing Based on the Production Rate 3088.4 Profit Oil Sharing Based on Cumulative Production 3188.5 Introduction to Profit Sharing Based on a Measure of Cumulative Profitability: The “R-factor” 3278.6 R-factors and the “Gold Plating” Effect 341Appendices (Available on Disk)Appendix I: DepreciationAppendix II: Tax Loss CarrybacksAppendix III: Time-Limited Tax Loss CarryforwardsAppendix IV: Knowing when to Quit: An Alternative Economic Limit Test MethodAppendix V: Introduction to Probability and Crystal BallIndex 345

KEN KASRIEL is a Senior Petroleum Economist with RPS Energy, London. He has 18 years of experience in petroleum finance. He has performed numerous upstream petroleum valuations of assets in Africa, Asia, Europe, the Former Soviet Union, the Middle East and North America. His valuations and analyses have been used in public offerings, annual reports and other regulatory filings in various jurisdictions; and for the purposes of project financing, bid rounds, transaction valuation, portfolio optimization, expert witness support in commercial arbitration, and governmental fiscal design advisory. Before joining RPS Energy he worked 7 years as Senior Analyst for the Global Petroleum practice of PriceWaterhouseCoopers. He has also worked as an oil and gas equities analyst with Robert Flemings Securities (now part of JPMorganChase) and Creditanstalt Investment Bank (now part of BankAustria), and as an independent consultant to London-based oil and gas equity research teams. He has written on petroleum economics in the Oil and Gas Journal. His email is ken_kasriel@yahoo.com.DR. DAVID WOOD has over 30 years of energy industry experience, mainly in petroleum, spanning technical and commercial exploration and production operations, mid- and downstream projects, and contract evaluation. His early energy industry experience includes Phillips Petroleum, Amoco (Africa, Europe and UK), and Lundin Oil (South America, Africa, Middle and Far East). From 1993-98 he was UK Managing Director for a portfolio of North Sea and onshore UK oil and gas assets. Since 1998 he has worked as an independent consultant, training provider and expert witness. He runs an oil and gas consulting company, DWA Energy Limited. He has published on energy related topics including: performance modeling of fiscal designs, petroleum economics and risk analysis, enterprise risk and portfolio management, LNG, GTL, gas storage and supply, deepwater E&P techniques, corporate performance, M&A, negotiations and project management. He has provided fiscal design advice to organizations including the Alaskan Legislature and the Yemen Government. He is involved in professional training, research, publication and development programs and is the assistant editor-in-chief of the Journal of Natural Gas Science & Engineering. He has designed and taught online training courses including oil and gas MBA programs. His email is dw@dwasolutions.com and website is www.dwasolutions.com

Select Guide Rating

• Introduction xiAcknowledgements xvi1 Introduction to Tax and Royalty Regimes 11.1 Introduction 31.2 Inflation and Discounting: Time Value of Money Basics in the Context of Upstream Petroleum Modeling 51.3 Introducing Basic Components of Upstream Petroleum Cashflow Under a Simple Tax and Royalty Regime 161.4 Another (Important) Multiplier – Introduction to Modeling Commercial Behavior with the Economic Limit Test 201.5 Chapter Model Housekeeping Notes 251.6 Chapter Model Assumptions 271.6.1 Assumptions: General Remarks 271.6.2 Assumptions: Time and the Time Value of Money 281.6.3 Assumptions: Commodity Prices 291.6.4 Assumptions: Production Profile 341.6.5 Assumptions: Capex 341.6.6 Assumptions: Opex 361.6.7 Assumptions: Abandonment 371.6.8 Assumptions: Royalty 381.6.9 Assumptions: Rentals 391.6.10 Assumptions: Bonuses 401.6.11 Assumptions: Income Tax and Related Items 421.7 Pre-ELT Calculations 451.7.1 Pre-ELT Calculations: Opex and Capex Timing/Inflation 451.7.2 Pre-ELT Calculations: Bonus and Rentals 471.7.3 Pre-ELT Calculations: GOCF 481.8 ELT Calculation and Role in Economic Modeling 491.9 Post-ELT Calculations 601.9.1 Post-ELT Calculations: Abandonment 601.9.2 Post-ELT Calculations: Depreciation 621.9.3 Income Tax: Basic Concepts and Calculations 631.9.4 Returning to Main Model – Post-ELT Calculations: Income Tax 741.9.5 Post-ELT Calculations: NCF and Discounting 801.9.6 Post-ELT Calculations: Financial Metrics 831.9.7 Post-ELT Calculations: Volumetric Outcomes 861.10 Multivariable Sensitivity Analysis Using a Two-Way Data Table 891.11 The ELT – Questions to Consider 891.12 Review Exercise: Key Calculations 892 Tax Consolidation and Incremental Value 912.1 Tom and Carmen Mix Love and Money: A Romantic Introduction to Fiscal Consolidation 932.2 Petroleum Tax and Royalty Regimes: “Ringfencing” vs. Consolidation 952.3 Ringfencing, Consolidation and Incremental Value 962.4 Ringfenced vs. Consolidated Incremental Value Model: Assumptions 992.5 Ringfenced vs. Consolidated Incremental Value Model: Calculations 1022.6 Model Results and Analysis 1052.7 Exercise – Try Modeling Scenario 2 Yourself 1072.8 Income Tax Consolidation and Incremental Value (Interactive Analysis) 1083 Royalties 1093.1 Introduction 1113.2 Royalty Based on Commodity Prices 1133.3 Royalty Based on Length of Production 1193.4 Royalty Based on Period-End Cumulative Production 1223.5 Royalty Based on Cumulative Production Throughout the Period 1253.6 Royalty Rates Based on the Production Rate 1433.7 Royalty Based on Price and Production Rates (Version 1) 1543.8 Royalty Based on Price and Production Rates (Version 2 – Based on Canada’s New Royalty Framework) 1603.9 Royalty Based on a Measure of Cumulative Profitability: The “R-factor” 1603.10 Royalty Based on a Measure of Cumulative Profitability and Commodity Prices – Canadian Oil Sands 1664 Bonuses 1674.1 Introduction 1694.2 Commerciality Bonuses 1704.3 Bonuses Payable at First Commercial Production 1734.4 Cumulative Production Bonuses 1734.5 Bonuses Based on the Cumulative Value of Production 1784.6 Bonuses Based on the Production Rate for a Specified Period 1785 Abandonment 1895.1 Introduction 1915.2 Lumpsum Abandonment Payments 1925.3 Equal Abandonment Contributions Made Over the Production Period 1945.4 Unequal Abandonment Contributions, Based on Annual Production as a Percentage of Ultimate Production 1995.5 Equal Abandonment Contributions, Starting when Depletion Reaches a Specified Threshold 2005.6 Equal Abandonment Contributions Starting from a Specified Number of Periods Before Economic Production Ends 2035.7 Equal Abandonment Contributions Starting when the Producer Chooses 2045.8 Multiple Methods, Using Whichever One Makes Abandonment Contributions Start Earlier 2065.9 Abandonment Contributions which Earn Interest (Single Rate) 2065.10 Abandonment Contributions which Earn Interest (Variable Rates) 2116 Introduction to Production Sharing Contract-Based Fiscal Regimes 2136.1 Overview: PSCs as a Specialized Revenue Sharing Framework 2156.2 Looking Ahead: Road Map for This and the Next Chapters 2176.3 Simple Example of PSC Revenue Distribution 2186.4 Simplistic (Single-Year) Model Revenue Distribution Calculations, Including Cost Oil Determination 2206.5 Introducing “Entitlement Volumes” 2296.6 Simplistic, Multi-Period PSC Model: The Calculation of Cost Oil 2346.7 Topic in Depth: Contractor Entitlement 2427 More Realistic PSC Modeling 2437.1 Introducing a More Realistic PSC Model 2457.2 Arriving at Our “Core” PSC Model 2617.3 “Uplifts” to Cost Oil 2658 PSC Regime Variations 2738.1 PSCs with Explicit Income Tax Provisions 2758.2 Profit Oil Sharing Based on Commodity Prices 2888.3 Profit Oil Sharing Based on the Production Rate 3088.4 Profit Oil Sharing Based on Cumulative Production 3188.5 Introduction to Profit Sharing Based on a Measure of Cumulative Profitability: The “R-factor” 3278.6 R-factors and the “Gold Plating” Effect 341Appendices (Available on Disk)Appendix I: DepreciationAppendix II: Tax Loss CarrybacksAppendix III: Time-Limited Tax Loss CarryforwardsAppendix IV: Knowing when to Quit: An Alternative Economic Limit Test MethodAppendix V: Introduction to Probability and Crystal BallIndex 345