Changes in tax regimes are reshaping investments in oil and gas
London, 20 June 2013 - Despite the uncertainty in the current global economic environment, the continued imposition of taxes on income from oil and gas operations remains a certainty. The scope, impact and makeup of such taxes, however, are far from certain, especially in a global environment of constantly evolving tax and fiscal policy. This is according to EY’s newly released annual Global oil and gas tax guide which summarizes the oil and gas tax regimes in 74 countries.
Alexey Kondrashov, Oil & Gas Tax Leader at EY says, “The fiscal environment is constantly changing around the globe. With the globalization of investment has come an increased emphasis on global tax policy and regime changes and the resulting impact these changes can have on investments. Globally, various countries have introduced or are contemplating introducing changes in the way oil and gas operations are taxed – from exploration and production to retail operations.
Development of unconventional oil and gas, shale oil and gas in particular, is economically possible under current oil prices. Many countries see it as a policy objective and are working on altering their fiscal framework to provide incentives for such projects. The impact of changes to the tax law may affect available cash to establish reserves or to service debt. This can negatively affect the balance sheet, with the result that credit agreements and covenants may need to be examined closely.”
According to the guide, governments worldwide still rely on production sharing arrangements for upstream projects owing to their reasonable flexibility in risk or reward sharing and the possibility to arrange for a tailored solution based on the project’s specifics. In addition, activities around the technically challenging offshore Arctic resources vary across the Arctic nations. Notably, Russia is actively attracting international majors and working on a special tax regime for offshore Arctic to boost exploration.
The search for recoverable reserves continues to globalize. As long as recovery remains economically viable, both developed and emerging countries are expected to take measures to develop such reserves and countries are constantly competing for investor’s capital. New emerging markets, in which hydrocarbon reserves have just been discovered – including the African nations, Cyprus, Lebanon, Israel and Myanmar – are working toward designing their national legal and tax legislation for the oil and gas industry.
Alexey Kondrashov concludes, “Now more than ever, it is vital for governments to make oil and gas tax regimes competitive and attractive to investors.”
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