US ranks near bottom as home base for overseas upstream oil, gas investment

IHS CERA analysis compares US-based companies and other companies in acquiring oil and gas concessions

CAMBRIDGE, Mass. – The competitive playing field in the international oil and gas business has become more crowded, both with new entrants and the growth of existing players. In the past two decades, the number of companies (excluding national oil companies that do not operate outside their home territories) with production of more than 1 million barrels of oil equivalent per day has doubled from 8 to 16. The share of global activity by investor-owned companies (IOC)—measured by oil production, the acreage owned and the number of wells operated by IOCs in the US and elsewhere—has declined in relative terms over the past forty years as National Oil Companies (NOCs) have taken control of their home territories and emerged into the international arena as what are known as “INOCs”—international national oil companies.

However, non-US-based companies have fared better in the face of this new competition than their US-based counterparts over the same period, according to a new report by IHS Cambridge Energy Research Associates (IHS CERA) undertaken in conjunction with Deloitte, the professional services firm and one of the world’s leading experts on oil and gas taxation. 

“The acquisition of oil and gas concessions is the paramount point of competition between oil and gas companies in the upstream sector,” said IHS CERA chief energy strategist, David Hobbs. “Success provides a company with the ‘fuel’ in its portfolio to deliver superior growth and returns. Failure leads to more of an uphill struggle. This has important implications for the long term health and employment prospects of oil and gas companies.

When oil and gas companies are successful overseas, their home countries benefit from a greater sense of energy security; increased employment; promotion of their technology, equipment and services suppliers; research and development investment to support international operations; and returns to shareholders through repatriated dividends, the report concludes. 

There are a variety of factors that contribute to the difference in performance between US-based and non-US-based companies, including the policy objectives of the home country, access to capital, the ability to mobilize collateral investments in the host country (e.g., ports, railways, power generation etc) and the complex interactions between the host country fiscal regime and that of the home country. This last factor has not previously received the attention it deserves, according to the analysis.

The analysis, Fiscal Fitness: How Taxes at Home Help Determine Competitiveness Abroad was undertaken by IHS CERA in collaboration with the professional services firm Deloitte and is built upon the complementary analytic capabilities and tools of the two firms. The study includes an examination of the tax policies of the ten countries that are home to the largest international oil companies. The methodology for ranking home countries involved using the IHS QUE$TOR™ cost estimation tool to model the costs of representative large scale oil and gas development projects in a selection of major resource holding host countries that are open to international investors (including Australia, Canada, Iraq, Libya, Norway, Qatar, Russia, United States and Venezuela). The costs and production profiles were evaluated under the fiscal regimes of each country using a proprietary IHS economic evaluation model to create an assessment of the profitability and value of each field in the host country. 

Deloitte developed models of the costs of repatriating the profits from each host country to each of the home countries, analyzing 99 different combinations of host and home. The costs were deducted from the AS$ET cashflows to calculate the relative profitability and value when the cash flows were repatriated to each of the analyzed home countries.

The combined costs of “exporting” profits (dividend withholding taxes) from the host country and of “importing” profits to the home country (in some cases, paying taxes on the profits that have already been taxed in the host country) creates differences in the valuation of assets depending on the home country to which they are referenced. This difference is reflected in the amounts that companies can afford to bid for oil and gas rights.

The costs of repatriating profits from international operations back to the United States is higher than many of its chief competitors and places a value hurdle in the path of US-based oil and gas companies that is higher than that of companies based in other countries. Securing new concessions requires them to overcome this hurdle, according to the analysis.

Companies from other countries such as the United Kingdom, Netherlands, Russia, Canada, Norway, Italy and China pay less by way of additional taxes on their repatriated profits and are therefore able to compete more easily with US-based companies—in some cases enabling them to afford to bid twice as much for oil and gas concessions.



Did You Like this Article? Get All the Energy Industry News Delivered to Your Inbox

Subscribe to an email newsletter today at no cost and receive the latest news and information.

 Subscribe Now

Whitepapers

Logistics Risk Management in the Transformer Industry

Transformers often are shipped thousands of miles, involving multiple handoffs,and more than a do...

Secrets of Barco UniSee Mount Revealed

Last year Barco introduced UniSee, a revolutionary large-scale visualization platform designed to...

The Time is Right for Optimum Reliability: Capital-Intensive Industries and Asset Performance Management

Imagine a plant that is no longer at risk of a random shutdown. Imagine not worrying about losing...

Going Digital: The New Normal in Oil & Gas

In this whitepaper you will learn how Keystone Engineering, ONGC, and Saipem are using software t...

Latest PennEnergy Jobs

PennEnergy Oil & Gas Jobs