Malaysia PSC

(1)

Overview of Malaysian PSC

(2)

FIELD LOCATION MALAYSIA

M’sia / Thai Development Area PM3 Commercial Arrangement M’sia-Vietnam Kangar Georgetown Lumut Meru KUALALUMPUR Seremban Melaka Johore Bahru Segamat Kuantan Kemaman KERTIH Kuala Terengganu Gurun Kg. TOKARUN

SARAWAK

SABAH

LNG PLANTS

FIELD

OIL

GAS

DISCOVERED

134

178 PRODUCING

47

14 OIL AND GAS FIELDS*

PENINSULAR

MALAYSIA

(3)

MALAYSIA EXPLORATION AND PRODUCTION

BLOCKS

Sulu Sea Celebes Sea Pulau Timbun Mata Pulau Tawitawi Pulau Sibutu Pulau Malawali Pulau Bugsuk PALAWAN ( PHI LI PPINES) Pulau Balabac

THAILAND Malaysia / Thailand Joint Development Area PM3 Commercial Arrangement Area South China Sea VIETNAM SI NGAPORE S t r a _i t s _o f _M e _l a _k a SUMATRA Kepulauan Anambas Pulau Djemadja Pulau Natuna Pulau Subi Besar 1° 3° 5° 7° 9° 1° 3° 5° 7° 9° 98° 100° 102° 104° 106° 108° 110° 112° 114° 116° 118° 120° 98° 100° 102° 104° 106° 108° 110° 112° 114° 116° 118° 120° Pulau Banggi SARAWAK KALI MANTAN SABAH Pulau Langkawi Pulau Pinang PENINSULAR MALAYSIA Pulau Labuan B R U N E I 0 200 Km PM314 Pulau Balambangan A C B D SB303 E SB302 PM321 PM322 PM303 PM308 SK301 F SK302 SK303 SK304 SK331 SK333 SK332 SK334 SB304 SB332 SB330 SB305 SB331 SB306 SB301 J SK308 SK3 PM311 PM306 PM302 SK312 PM301 PM307 PM305 G H SK310 SK311 2 0 0 m 2 0 0 m SK306 B S K 3 0 9 F S K 3 0 9 PM313 SK 307 K SK5 SK305 PM320 L M PM309 PM312 Pulau Tioman ND1 ND2 ND3 ND4 ND5 ND6 ND7 Pulau Sebatik Pulau Jambongan

(4)

CONCEPT OF PRODUCTION SHARING

CONTRACT (PSC)

GOVERNMENT

PETRONAS

CONTRACTORS

PDA

PSC

Entire owne rship o f Nation's petroleum resources is ve ste d to PETRONAS. PETRONAS has e xc lusive rights to exploit Nation's pe trole um reso urce s.

PETRONAS, as a custodian, manage s the pe troleum res ource s o f the Nation.

Formulates relevant policy and guidelines.

Provide s ne ce ss ary ince ntives and c onducive inve stme nt environment for upstream petroleum business.

Adds value to the pe trole um resources.

Conve rte d Conce ssion Syste m to Produc tion Sharing Contracts (PSC).

Obligates Partners to provide all financing and insulate PETRONAS from risks. Provides a more equitable partnership.

Stipulates contractual period, management of operations, re co ve ry of cos ts, division of profit, obligations of partie s.

Plans and secures long term de ve lopme nt of Nation's pe trole um re source base . Promotes sustainable

exploration, development and production of re so urce s for the maximum b e ne fit to the nation. Manage s pe rformance of PSC Partne rs.

Brings in fore ign inve stme nt and technology.

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EVOLUTION OF PSC INLINE WITH CHANGING

ENVIRONMENT

Revenue-over-cost (R/C)

To attract new foreign investment through smart partnership concept DEEPWATER

PSC

Target for big players with deepwater

experience 1985 PSC

To attract other oil companies besides ESSO and SHELL 1976 PSC

Convert existing Concession into PSCs CONCESSION

AGREEMENT

Oil companies and State government

(6)

PSCs IN OPERATION IN MALAYSIA

(As at January 2004)

5 4 4 4 5 5 6 6 6 6 4 11 21 27 30 30 29 29 31 31 27 33 37 42 43 41 44 46 1976 1980 1984 1988 1992 1996 2000 0 10 20 30 40 50 1 9 7 6 P S C 1 9 8 5 P S C D E E P W A T E R_{& R / C P S C}

(7)

SPLIT OF THE BARREL UNDER PSC

Royalty (B)

10% of (A)

Cost Recovery (C)

Max 50% of (A)

less

equals

Revenue (A)

Profit Oil

(A)- (B)-(C)

Cost Recovery to Contr

Profit to Contr

Entitlement to Contr

Tax

Expenses

less

equals

Contractor NCF

plus

equals

Contractor

Profit to NOC

Tax

Entitlement to NOC

equals

less

equals

Contractor NCF

National Oil Company

Royalty

Contr tax paid

NOC tax paid

GOV NCF

plus

equals

(8)

76 PSC

Gross Revenue

Less Cost

Cost Oil Ceiling

20%

Actual Used

Cost

Contractor’s

Profit Oil

Profit Oil Split

Contr : PET

30% :70%

PETRONAS

Profit Oil

Less Royalty

10%

Government

Cash Flow

Less PITA

38%

Less PITA

38%

Contractor Cash Flow

(9)

85 PSC

Gross Revenue

Less Cost

Cost Oil Ceiling

50% Oil, 60% Gas

Actual Used

Cost

Contractor’s

Profit Oil

Profit Oil Split

Contr : PET

Sliding

PETRONAS

Profit Oil

Less Royalty

10%

Government

Cash Flow

Less PITA

38%

Less PITA

38%

Contractor Cash Flow

PETRONAS Cash Flow

Contr

PETH

First

10 kbd

50

10 kbd

40

60

(10)

ROC (Revenue Over Cost) PSC

Gross Revenue

Less Cost

Cost Oil Ceiling

Depend on R/C

Actual Used

Cost

Contractor’s

Profit Oil

Profit Oil Split

Contr : PET

Depend on R/C

PETRONAS

Profit Oil

Less Royalty

10%

Government

Cash Flow

Less PITA

38%

Less PITA

38%

Contractor Cash Flow

PETRONAS Cash Flow

Unused Cost Oil

Contr : PET

(11)

Contractors' Cumulative Cost Oil +Profit Oil From The Effective Date

Contractors' Cumulative Petroleum Costs From The Effective Date

R/C Index =

One of the "yardsticks" to gauge Contractors' profitability at any time is by

the RATIO of Contractors' Cumulative REVENUE over Cumulative COSTS.

We define the above yardstick as Contractors' R/C Index

R/C = 1; Represents PAYOUT (undiscounted), but true Payout (considering

time value of money, tax payment, etc.) occurs when R/C is around 1.4

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 Year C o n t r a c t o r ' s C u m . C o s t s & C u m . R e v Cumulative Revenue (PO+CO) Cumulative Costs 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 Year 0.00 0.50 1.00 1.50 2.00 2.50 C o n t r a c t o r ' s R / C I n d e x

APPROACH : REVENUE-OVER-COST (R/C) INDEX

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R/C TABLE

COST

OIL

PROFIT OIL

Cost

Oil

Ceiling

Unused Cost

Oil

PET : Cont

Profit Oil

PET : Cont

0.0 < R/C <= 1.0

70%

_N.A

_.

20 : 80

1.0 < R/C <= 1.4

60%

20 :

80

30 :

70 1.4 < R/C <= 2.0

50%

30 :

70

40 :

60 2.0 < R/C <= 2.5

30%

40 :

60

50 :

50 2.5 < R/C <= 3.0

30%

50 :

50

60 :

40 R/C

>

3.0 30%

60 :

40 70:30

Contractor’s R/C

Ratio

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FISCAL IMPROVEMENT

Fiscal terms are tied to rate/volume level, NOT related to PROFITABILITY

Fixed Cost Oil/Gas is NOT sensitive to investment level especially in the

early of the project life

Fiscal terms applied to Contract Area (rather than field basis)

Higher profit split benefits accrue to First field. Subsequent development

does not enjoy higher profit split.

NO fiscal incentives to save costs

Any Unused Cost Oil/Gas becomes profit and share in a bigger proportion

to PETRONAS

NO fiscal incentives for re-investment

Additional investment will not enjoy the same benefit as in earlier

investment

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COMPARISON OF PSC - OIL

Note : The 1976, 1985 and R/C PSCs are based on 40 million bbls crude oil reserve volume. The Deepwater PSC assumes a large oil discovery in excess of 1 billion bbls.

P e r c e n t o f G r o s s R e v e n u e

0

20

40

60

80

100

GOVERNMENT COST PSC Partner PETRONAS 42.3 28.0 13.3

R/C

16.4 42.2 28.0 15.8 14.0

1985

PSC

38.1 23.1 28.7 10.1

1976 PSC

30.1 44.7 12.5 12.7

DEEPWATER

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It allows Contractor to take more when its profitability is low and PETRONAS' take

progressively increases when Contractor's profitability improves:

1. Higher Cost Tranche is given when Contractors' Profitability is low and

decreases as Contractor's Profitability increases.

2. Higher Contractor's share of Profit Oil/Gas is given when Contractor's

Profitability is low and decreases as Contractor's Profitability increases.

C O N T R A C T O R ' S S H A R E O F P R O F I T O I L / G A S High

Low Contractor's Profitability (as indicated by R/C) High

C O S T T R A N C H E High High

Contractor's Profitability (as indicated by R/C)

Low

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-30% -20% -10% Base Case 10% 20% 30% 4 6 8 10 12 14 16 18 20 22 C o n t r a c t o r ' s I R R ( % M O D )

Oil Price Cost

Salient Features

of ROC PSC

- Sensitivity of IRR on Oil Price and Cost

Salient Features:

Under the new R/C fiscal terms, Cost Reduction provides as much impact on Contractors' IRR as that caused by oil price increase

Cost Reduction is fully within our control, unlike oil price. Therefore, Contractors will be enticed to reduce cost rather than to hope for oil price to improve. This leads to larger share in revenue for all parties involved.

Decrease Percent Variation Increase

100 mmbbl

40 mmbbl 40 mmbbl

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R C I N D E X

YEAR

A N N U A L 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 C U M U L A T I V E 0.0 0.5 1.0 1.5 2.0

COSTS

REVENUE

Cumulative Costs

Cumulative Revenue

1st round investment 2nd round investment

Dip in R/C Index as a result of

additional investment.

E&P Business

ECA-1 / mcprer3c/JAN 1996 EMD

PROFITABILITY BASED FISCAL REGIME :

Sensitive to Re-investment

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Costs, Reserves & Oil Price are estimated based on current conditions and

current Technology when a Contract is negotiated and agreed.

Estimates likely to change, New technologies may evolve over time.

R/C IS SELF-ADJUSTING

2 4 6 8 10 12 14 16 18 20 0.0 1.0 2.0 3.0 C O N T R A C T O R ' S R / C I N D E X 0 2 4 6 8 10 12 14 16 18 20 0.0 1.0 2.0 3.0 C O N T R A C T O R ' S R / C I N D E X 1 3 5 7 9 11 13 15 17 19 0.0 1.0 2.0 3.0 C O N T R A C T O R ' S R / C I N D E X 0 2 4 6 8 10 12 14 16 18 20 0.0 1.0 2.0 3.0 C O N T R A C T O R ' S R / C I N D E X