A delayed royalty framework for investments in the exploration and production of hydrocarbon

The nature of oil and gas Nation's petroleum fiscal system affects the survival of exploration and production(E&P)companies during periods of low oil price as these companies are expected to pay royalty to the government irrespective of the price of oil.This affects the sustainability of E&P companies during periods of low oil price.There is the need to design a petroleum fiscal systems that increases the chances of survival of firms during periods of low oil price.This research therefore considered the economic analysis of a delayed royalty framework for investments in the exploration and production of hydrocarbon.The delay in royalty payment was hinged as a function of the time it takes the contractor to recoup his investment capital.Three economic models for petroleum investment in an onshore oil field were built.Royalty rate in the models was varied between 0 and 30%and oil price was also varied between$30-$120/bbl.Model 1 was the base case model with zero royalty payment.While model 2(Scenario 1)had royalty payment.Model 3(Scenario 2)had a delayed royalty payment.Risk analysis was also carried out to see how the delayed royalty framework increases the sustainability of E&P firm using@Risk software.It was observed that the delayed royalty framework increases the chances of survival of firms as the NPV for Scenario 2 was positive but without the framework,it was negative at an oil price of$30/bbl.The payout period,government and contractor's take and the internal rate of return also show that the delayed royalty framework will increase the chances of a firm's survival during periods of low oil price.It is seen that the delayed royalty framework is another way to make a petroleum fiscal system progressive aside the already known factors used globally.