Exploring Arctic oil and gas

Summary attractiveness of Arctic opportunities by country

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As shown in the chart below, the fiscal and tax perspective is extremely important. In the accompanying table, we have summarized the key characteristics of the tax regimes of the five countries. Notably, we have included two “views” of the Russian regime: the current state and a summary of the proposed new regime for the Arctic offshore.

Summary attractiveness of Arctic opportunities by country

Summary Arctic tax regimes by country

Summary Arctic tax regimes by country

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Summary Arctic tax regimes by country

  US (Alaska) Canada Greenland Norway Russia (current) Russia offshore (proposed)
Fiscal basis1 and key features Profits-based
Corporate income tax and royalties
Profits-based
Corporate income tax and royalties
Profits-based
Corporate income tax
Profits-based
Corporate income tax with additional income tax for upstream activities
Revenue-based
Royalties (Mineral Extraction Tax (MET)) and export duties
Profits-based
Corporate income tax and royalties (MET)
Indicative average level of overall fiscal burden on project's economics at US$80/bbl2 48% - 72% 42% - 54% 35% - 40% 79% 75% - over 100% Less than 70%3
Timing of taxation toward project's payout4 Weakly to average front-end loaded Average front-end loaded Weakly front-end loaded Weakly front-end loaded Extremely front-end loaded Average front-end loaded
Investment incentives Various capital allowances Various capital allowances Various capital allowancess Capital allowances and uplifts Reduced royalties, limited holidays and lower rates for designated locations and specific fields Production royalties (MET) significantly reduced, export duty abolished, import duties and property tax exemptions allowed, and capital allowances and uplifts
Loss carryforward / carryback period 20 years/2 years 20 years/3 years Indefinitely/0 years Indefinitely/0 years 10 years/0 years 70 years/0 years
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  1. 1 Generally, under production — or revenue-based systems, the investor pays taxes before it deducts its costs.
  2. 2 Based on World Rating of Oil and Gas Terms, Volume 3 (Rating of Arctic Oil and Gas Terms). PFC Energy, Van Meurs Corporation and Rodgers Oil & Gas Consulting, 2011. An overall fiscal burden or a government's "take" is the relationship of all payments to the government to economical project's profit (all income less all expenses).
  3. 3 The announced new tax regime applies only to offshore projects and envisages much more favorable terms for investors compared with the current terms for offshore. For the announced new tax regime for Arctic offshore, the government's take should be significantly lower (below 70%) than under the current terms. Per the estimates of certain experts, the government's take ranges from 30% to 70%, depending on project's specifics. Currently the announced regime is under development and has not yet been enacted. All other criteria (other than the government take) are provided for offshore projects only. The proposed tax regime does not apply to Arctic onshore.
  4. 4 Timing of taxation is more important than the level of a fiscal burden. The timing of the government's take depends on a composition of fiscal features; profits-based systems shift the timing toward the payout and after-payout period, while royalties and other non-profits-based systems could result in high fiscal payments before a project reaches a payout.
  US Canada Greenland Norway Russia
General fiscal terms
 
 
 
 
 
Access to resources
 
 
 
 
 
Competition for resources
 
 
 
 
 
Cost environment
 
 
 
 
 
Existing infrastructure
 
 
 
 
 
Access to infrastructure
 
 
 
 
 
Access to markets
 
 
 
 
 
Potential for material discoveries
 
 
 
 
 
Potential for material value creation
 
 
 
 
 
 
Very favorable
 
Favorable
 
Moderate
 
Unfavorable
 
Very unfavorable
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Source: EY adaptation from Deutsche Bank Markets Research, “Is the Arctic the future of Russian oil?” 24 September 2012