Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains. November 29-30, 2007

Transcription

1 Bureau of Economic Geology Jackson School of Geosciences The University of Texas at Austin Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains November 29-30, 2007 McCombs School of Business: Energy Finance Program Introduction Outline Day 1 Overview of energy value chains - oil and gas systems in overall context Key issues impacting global energy and trade flows National Petroleum Council Global Oil and Gas Study National Oil Companies Commodity vs physical markets Upstream issues Trends - North America, worldwide Identification of key risks, uncertainties Upstream investment decision considerations Heavy oil resource case study - technology and optimization Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains- 2 - Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 1

2 Outline Day 2 Midstream/downstream commercialization Trends - North America, worldwide (oil v gas) Pipeline economics and cost model Refining economics and issues LNG value chain Gas and power business models Conclusions Business integration models and asset/enterprise valuation Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains- 3 - Bureau of Economic Geology Jackson School of Geosciences The University of Texas at Austin The Link Between Energy Value Chain Economics, Finance and Frameworks Upstream Oil and Gas McCombs School of Business: Energy Finance Program Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 2

3 Global E&P Activity Source: World Energy Outlook 2004, International Energy Agency Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains- 5 - % of Reserve Ba Change in Strategic Focus: Fewer High Impact Projects 65% 25% 0-50 MMBOE MMBOE 28% 12% 60% >250 MMBOE 0 10% From: Fred Gibson, Building Investment Frameworks, 2004 CEE New Era Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains- 6 - Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 3

4 Where is Value Created Explore Commercialize Develop Produce Intrinsic Value Value Extraction Value From: Fred Gibson, Building Investment Frameworks, 2004 CEE New Era Time Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains- 7 - Upstream Evaluation is Complex The inability to determine with certainty the geological characteristics of a project area probability analysis. Political factors have significant bearing on the outcome. A considerable amount of data needs to be collected and analyzed. Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains- 8 - Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 4

5 Exploration Costs Topographical, geographical and geophysical (G&G) studies, rights of access to properties to conduct these studies and salaries and other expenses of people involved in these studies. Costs of carrying and retaining undeveloped properties, such as rentals, taxes, legal costs and maintenance of the land and lease records. Dry hole contributions and bottom hole contributions. Costs of drilling and equipping exploratory wells. Costs of drilling exploratory-type stratigraphic test wells. Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains- 9 - Additional Data Needed Before Commerciality initial reservoir pressure and temperature, formation properties, fluid properties, short-term flow tests to estimate the potential rate and reservoir extent, geological sample data and depth reference points for modification of pre-drilling data. Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 5

6 Hydrocarbon Classification Framework Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Resource Evaluation Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 6

7 Reserves are just an estimate If reservoir conditions are good, estimate will be more likely to be real: If the pressure in the formation is higher than the pressure in the well, it will push the oil and gas up the well bores. An aquifer, which expands in size as production continues, will act as a piston and push the fluids up. A gas cap, which expands as production continues can push the oil out of the pores toward the well. If the reservoir has enough vertical permeability, gas rises and oil falls because of density differences. This separation of oil and gas enhances oil recovery. Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Reserves are just an estimate, II If reservoir conditions are bad, estimate will be less likely to be real (and more expensive to prove): Significant capillary forces in tight sections of the formation, where permeability and porosity are low, reduce the flow of oil and gas. Low permeability and porosity mean that the rock is tight and cannot produce at commercial rates. Limitedness of the area of flow around the well bore can also lower the rate of production. If oil is high in viscosity, it will not flow as easily. The farther oil needs to flow to reach the well, that is, the deeper the objective, the greater will be the resistance to flow. Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 7

8 Enhanced Recovery May Be Needed Water flooding (secondary recovery) - injection of water under pressure to maintain pressure. Tertiary recovery injection of chemical solutions (detergents), carbon dioxide or other substances. Associated gas produced along with oil may be reinjected into the reservoir. A steam flood may reduce viscosity and hence increase the rate of flow. Part of the oil can be burned in the reservoir to lower viscosity and help produce the rest of oil. Fracing involves pumping fluids into the producing zones under extremely high pressures in order to increase, widen and connect the naturally occurring fracture system. Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Enhanced Recovery is not free The decision to employ these methods depends on the expected increase in production rate. It is difficult to accurately estimate enhanced recovery performance of each method. The success of each method changes from field to field. A careful evaluation of options in each individual situation is necessary. Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 8

9 International Upstream Investment The financial issue of how costs are recovered and profits divided. Division of profits is commonly referred as contractor take and government take. The objective of a host government is to maximize wealth from its natural resources by encouraging appropriate levels of exploration and development activity by private companies governments must design fiscal systems. Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Sample Countries: Distribution of Resource Endowments 350, , , ,000 Iran Russia All FSU Kuwait India Reserves (BBOE) 150, ,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 = Iraq UAE Nigeria Venezuela Norway China Mexico Canada Saudi Arabia United Kingdom 0 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 United States Colombia Brazil Production (MMBOE) Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 9

10 Sample Countries: Upstream Regimes Favorable Worldwide risk capital equilibrium Quality of Commercial Frameworks U.S. Gulf of Mexico (Federal, non-moratoria) United States (all) Canada United Kingdom Colombia Norway UAE 2001 Brazil Nigeria India China Venezuela 2007 Iran Other FSU Russia Mexico Iraq Kuwait Saudi Arabia Favorable Relative Risk/Reserve Position Recent fiscal regime changes (more/less favorable) Source: Foss, *Approximations, only. Based on Foss, et.al., Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains How 24 Fiscal Systems Compare Source: Governments cut takes to compete as world acreage demand falls, Oil & Gas Journal, April 24, 1995 by Pedro Van Meurs. Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 10

11 Undiscounted Government Take in 50 Selected Fiscal Systems Source: Government takes decline as nations diversify terms to attract investment, Oil & Gas Journal, May 26, 1997 by Pedro Van Meurs. Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Value of Specific Deepwater Fields Under Various Fiscal Country Models PV (US$ million) Post Tax PV of Model Fields Baldpate (US) Genesis (US) Malampaya (Phil) Mars (US) Girassol (Ang) Roncador (Braz.) Ireland UK Italy Australia US GoM Brazil Low State Take Source: Wood MacKenzie Global Deepwater Markets November 2000 Philippines Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Nigeria Indonesia Egypt Brunei Norway Eq. Guinea Congo Angola High State Take Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 11

12 Oil & gas often generates substantial economic rents because value often greatly exceeds cost of production Total value of natural resources production Rents available to be shared among other stakeholders Excess profits captured by firms Normal return to oil & gas firms Operating costs Exploration and development costs Total economic rents available for sharing among stakeholders Total economic cost of producing natural resources From: Paul Boothe, Fiscal Instruments in Oil & Gas Regimes, UN Workshop on Oil & Gas in Iraq, 2006 Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Oil & gas rents flow to many different stakeholders in a wide variety of ways To the owners of the resource Royalties Equity stakes Production sharing Sale / auction of exploration, development and production rights Black market sales / smuggling From: Paul Boothe, Fiscal Instruments in Oil & Gas Regimes, UN Workshop on Oil & Gas in Iraq, 2006 To governments Taxes on production from privately owned oil & gas Revenues devolved/shared by other levels of government Export taxes Excess profit taxes Specific targeting of resource sector by corporate, property, sales or other general taxes Sale/auction of pollution permits Carbon tax To private citizens Above-average wage rates or corporate profits in resource sector Subsidized prices for end use of oil & gas (e.g. as fuel) by residents Theft / black market sales Graft and corruption of public officials (regulatory officials, managers of state assets, etc.) Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 12

13 Combinations of fiscal instruments work best Illustration of front-end bids and back-end royalties/taxes $ Auction of exploration / development / production rights (front-end loaded) Royalties / taxes / production sharing (back-end loaded) Exploration and development costs Volatile prices Production costs Gross revenue generated Excess profits Normal return to firms Start of production Payout End of production From: Paul Boothe, Fiscal Instruments in Oil & Gas Regimes, UN Workshop on Oil & Gas in Iraq, 2006 Rising production costs Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Combinations of fiscal instruments work best Profits from state / SOC oil & gas production State / SOC equity stakes (e.g. joint ventures) Royalties / production sharing (pre- payout ) Royalties / production sharing (post- payout ) Price-sensitive royalties / production shares Sale / auction of rights (at front-end) Service contracts for exploration / development + + Oil & gas-specific taxes General taxes (including excess profits taxes ) Contribution to revenues: + Minor ++ Major +++ Dominant Argentina Australia Brazil Canada Indonesia Malaysia Mexico Nigeria Norway Russia Saudi Arabia UAE USA Venezuela From: Paul Boothe, Fiscal Instruments in Oil & Gas Regimes, UN Workshop on Oil & Gas in Iraq, 2006 Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 13

14 Types of Fiscal Systems Petroleum Fiscal Arrangement Concessionary Systems Contractual Systems Production Sharing Contract PSC Service Contracts SC Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Concessions Contractor s Take Contractor s Take Gross Revenue Net Revenue Taxable Income Taxes DD&A Taxes DD&A Taxable Income Net Revenue Gross Revenue Royalties Royalties Royalties are the first, and usually the major, take for a government Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 14

15 Production Sharing Contracts Gross Revenue Net Revenue Profits Oil/Gas Taxable Income Contractor s Take Taxes Contr. Profit State s Profit Share Cost Recovery (Limited) Royalties <= 15% Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Basic Features of PSCs Title of hydrocarbons remains with the state. State maintains management control and contractor is responsible for execution of petroleum operations according to contract. Contractor is required to submit annual work programs and budgets for scrutiny and approval of a state institution, usually the national company. The contract is based on production sharing and not profit-sharing basis. Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 15

16 Basic Features of PSCs (cont d) Contractor provides all financing and technology required for operations and bears the risks. During contract term, after allowance for up to a specified % of annual production for recovery of costs, remaining production is split between contractor and state. Equipment purchased and imported by contractor become property of the state. Service company equipment and leased equipment are exempt. Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains PSC Structure Operational Aspects Revenue or Production Sharing Elements National Legislation Government participation Ownership transfer Arbitration Insurance Royalties Taxation Depreciation rates Investment credits Domestic obligation Ringfencing Contract Negotiation Work commitment Relinquishment Commerciality Bonus payments Cost recovery limits Production sharing Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 16

17 An Oil PSC Model Cash Flow = Net Revenues Intangible Expenses Tangible Expenses O&M Expenses Bonuses Total Profit Oil + Contractor s Profit Oil Income Tax Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Evaluation Criteria NPV IRR PWP - the time it takes to recover an investment in terms of present value dollars. PWI - the ratio of the present value of cash inflows to the present value of the cash outflows. Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 17

18 A Simple Decision Analysis Framework Assumptions: Probabilities Reserves High Capital Expenditure High Oil/Gas Price High Drill No Drill >0 <0 Median Low Low Median Median Low At the decision node, if the expected NPV>0 at the required discount rate, then the choice is to drill. The ENPV is the sum of the probabilities times the values for all branches of the tree. Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Oil PSC Production & Cash Flow $ million million barrels a year Production Cash Flow Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 18

19 Oil PSC Model Results Reserves (mmbbls) 319 O&M cost ($/bbl) % 596 Fiscal Terms: Royalty 12.5% 5% 12% 1, Signing Bonus (millions USD) $50 15% 317 Contractor profit share Cost recovery limit (usually %) Income Tax Oil Price (bbl) 65% 80% 30% $25.00 IRR Total negative cash flow Total Investment 32.25% (331) 365 Discount Rate 10% Profit to Investment Ratio PIR 6.49 Production Profile: No of producing wells Plateau rate (bbls/day) 25 50,000 Discounted PIR Payout time (in years) Investment Efficiency Annual plateau production (mmbbls) 18.3 Project Life 30 Decline rate (3% to 7%) 7% Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Scenario Analysis Oil PSC, Price Shocks $ million First Second Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 19

20 Gas PSC Model $200 Production, Bcf Cash Flow ($MM) $150 $100 $50 $0 -$50 -$100 -$150 -$200 Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Gas PSC Model Results Reserves (bcf) 3,900 O&M cost ($/mscf) 0.10 Fiscal Terms: Royalty 10.0% 10.00% 461 Signing Bonus (millions USD) Contractor profit share Cost recovery limit (usually %) Income Tax Gas Price ($/MMbtu) $10 75% 80% 30% $1.00 IRR 5% 12% 15% % Discount Rate 10.00% Total negative cash flow (270) Production Profile: No of producing wells Plateau rate (mmscfd) Annual plateau production (bcf) , Total Investment Profit to Investment Ratio PIR Discounted PIR Project Life 19 Payout time (in years) 8 Decline rate (3% to 7%) 7% Investment Efficiency 2.36 Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 20

21 Bureau of Economic Geology Jackson School of Geosciences The University of Texas at Austin Case Study: Extra-heavy oil resource McCombs School of Business: Energy Finance Program Outline Background Evolution of fiscal regime Fiscal Regimes Royalty-Tax Accelerated depreciation Equity participation Uncertainty Final comment Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 21

22 The Faja The Faja is one of the largest oil deposits in the Western Hemisphere and is now economically viable, over 70 years after its discovery. Hydrocarbon ranges from 5 to 12 API and 125m to 1600m of depth. Why did production finally take off Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Development of Unconventional Resources Geostatistical and production uncertainty Where should wells be located How much will wells cost to build How will they perform For how long How much oil Gas Water Sand And let us not forget For how much will the oil be sold Historically blended with lighter crude oil. Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 22

23 Impact of Fiscal Regime 1976 Royalty Relief: No Long run royalty: 16.67% Taxes: 66.7% Private participation: No 1990 s Royalty Relief: 1% Long run royalty: 16.67% Taxes: 34% Private participation: 50% Price Level $8-$20 per barrel Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Initial Production <BPD> HEAVY OIL PRODUCTION $5000/BPDi VERTICAL WELLS. IGP, OHGP BASAL SANDS 200 BETTER SUCKER-ROD PUMPS 600 $1666/BPDi HORIZONTAL WELLS 1500, ESP AND DILUENT INJECTION 1200 HORIZONTAL WELLS , HIGH CAPACITY ESP AND PCP MULTIPHASE PUMPS MULTILATERAL WELLS Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains $400/BPDi Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 23

24 Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Original Production Plan of the Faja Synthetic Crude <KBPD> Ameriven Sincor OCN Petrozuata Crude Oil Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 24

25 8000 Investment in the Faja 7000 Invesment <Million $> Partners PDVSA Up to Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains HORIZONTAL WELLS Courtesy of Petrozuata Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 25

26 LATERAL FISHBONES Courtesy of Petrozuata Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains COMPLEX MULTILATERALS Courtesy of Petrozuata Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 26

27 WELLS OF PETROZUATA Courtesy of Petrozuata Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Focus on Petroleum Fiscal Regimes Tax royalty agreements Joint Ventures Contractual Production Sharing Agreements All costs are usually covered by investor Facilities and hydrocarbons are owned by the host government Payment for service is through a portion of production Cost recovery can be limited at a portion of the total revenue (possibility of carryover) Service Contracts Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 27

28 Tax Royalty with depreciation schedule In the simple case Company pays royalty Company pays taxes on profits after considering depreciation Revenue Taxable Depre. Costs Royalty Net Profit Tax Tax Cash Flow=(Revenue Royalty OPEX Dep.) * ( 1 - tax) + Dep. Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Simplified Discounted Cash Flow Model Income CAPEX OPEX For a simple analysis, capital expenditures can be lumped at the beginning of the project period, operation expenditures are incurred as production comes online, and depending on prices, the income changes over time Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 28

29 Data Input Investment Data Operating Cost Data Price Data Years to the date for start of exports Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Expected Project Value 1998 P50 $ Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 29

30 Expected Project Value 1998 Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Expected Project Value 2006 (1998 $) P50 $7, Considers price evolution between 1998 and Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 30

31 Expected Project Value 2006 (1998 $) Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Expected Value in 1998 vs 2006 Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 31

32 Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 32

33 Expected Value in 1998 vs 2006 Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains How was the value distributed 1990 s Royalty Relief: 1% Long run royalty: 16.67% Taxes: 34% Private participation: 50% Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 33

34 How was the value distributed Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains In 2006, the Government takes over 1990 s Royalty Relief: 1% Long run royalty: 16.67% Taxes: 34% Private participation: 50% Price Level $8 - $12 per barrel 2006 Royalty Relief: None Royalty: 33% Taxes: 50% Private participation: 50% Price Level $50-60 per barrel Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 34

35 How much value would a company lose Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains And what happens if prices go down Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 35

36 What is the status today Incumbents did not add investments during transition of fiscal regime Two of the operating incumbents have been removed Add on investments still seem attractive Lessons learned are in jeopardy of being lost New operators versus Associations New projects will need market for Syncrude Brasil will likely be the likely market for next project Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Final Comments and Open Questions Technical uncertainty was resolved and initial projects demonstrated viability of the eastern Faja. The value of the Faja is mostly untapped and will likely not be tapped in the short term. And Alberta Should royalty change once uncertainty is resolved Low initial royalty and then one that captures extra rents Wouldn t a corporate tax do the same Production and upgrading, should they be taxed differently Or are they effectively upstream Economics & Technology of the Crude Oil, Natural Gas and LNG Value Chains Center for Energy Economics, Bureau of Economic Geology, University of Texas at Austin. All rights reserved. 36