SPE 150907-PP Comparative Analysis of Optimal Oil Production Strategy Using Royalty & Tax and Production Sharing Petroleum Fiscal Models A.T.F.S.Gaspar Ravagnani, SPE, G.A. Costa Lima, SPE, C.E.A.G. Barreto, SPE, F.P. Munerato, SPE, and D.J. Schiozer, SPE, UNICAMP Copyright 2012, Society of Petroleum Engineers This paper was prepared for presentation at the North Africa Technical Conference and Exhibition held in Cairo, Egypt, 20–22 February 2012. This paper was selected for presentation by an SPE program committee following review of information contained in an abstract submitted by the author(s). Contents of the paper have not been reviewed by the Society of Petroleum Engineers and are subject to correction by the author(s). The material does not necessarily reflect any position of the Society of Petroleum Engineers, its officers, or members. Electronic reproduction, distribution, or storage of any part of this paper without the written consent of the Society of Petroleum Engineers is prohibited. Permission to reproduce in print is restricted to an abstract of not more than 300 words; illustrations may not be copied. The abstract must contain conspicuous acknowledgment of SPE copyright. Abstract After recent discoveries of large oil reserves in pre-salt areas of Brazil, the government has proposed a change in the current fiscal regime from Royalty & Tax to Production Sharing Contracts. The government wishes to implement the production sharing system to earn higher revenues, believing that this is the best policy to improve State gains to be transferred to society. In this new environment and focusing on the oil production strategy selection process, it is required to know if: 1) the production strategies are the same or different for both models 2) the same technical-economic indicators are suitable to be used to select the optimal production strategy in both systems. Nowadays, there is no clear convergence of points of view to answer these issues, although some debates among professionals and government are taking place. The aim of this paper is to present a comparative analysis of the optimum exploitation strategy for both fiscal models, regarding number of injection and production wells and, their allocation in the reservoir. This objective is accomplished following a production-strategy optimization that combines manual and automatic procedures to maximize the company NPV accounting for the assumption of a known behavior of oil prices. Sensitivity analyses of government take to oil price and cost recovery limits are carried out. The results show that the choice of the optimal-production strategy to maximize NPV depends on the fiscal regime. In addition, the government take is reduced with the increase of oil prices. For any oil price, the government take in the production sharing contract system is higher than in R&T, so that it is one of the reasons why it is more interesting from the government’s point of view. Besides, the increase of cost recovery limit implies in a reduction of the government take up to a stable value. Introduction According to ANP (2011), currently Brazil has approximately 14 billion barrels of oil but, over last decade, the area named Pre-Salt (rocks below salt-rock formation) in Brazil has been the stage of large oil field discoveries. Some information from the media indicates that Brazilian oil reserves may increase from 14 billion to 33 billion barrels with these new reserves expected in the Pre-Salt area.Oil reserves are hosted in rock at a depth between 4000 m and 6000 m. Table 1 shows some features of oil fields discovered over the last decade. Table 1: Some features of large oil discoveries in the area of Brazilian Pre-Salt Oil Field Discovery year Oil reserve (billion barrels) API Participation of Petrobras (%) Tupi 2007 5 to 8 28 65 Iara 2008 3 to 4 26 – 30 65 Parque das Baleias (set of oil fields) 2008 3.5 30 100 Guará 2008 1.1 to 2 30 45 Source: Petrobras (2012)