Uruguayan Petroleum Fiscal Regime

Abstract The objective of this paper is to introduce the Uruguayan Petroleum Fiscal Regime and to compare it against worldwide standards, with regards to the most commonly used statistic: Government Take, but also using other important statistics like Effective Royalty Rate, Savings Index, Lifting Entitlement and Progressivity. The ultimate goal is to measure the attractiveness of the Uruguayan oil and gas fiscal regime. Based on the probabilistic model of a hypothetical oil and gas field development offshore, and Production Sharing Contracts cash flow diagrams, the Government Take, Effective Royalty Rate, Savings Index and Lifting Entitlement were calculated and averaged for all the Production Sharing Contracts in force in Uruguay. In addition, the Progressivity of the Uruguayan fiscal regime for oil and gas was tested, a crucial feature of the fiscal regime design considering the fluctuations in crude oil prices. The calculated mean values were compared with international petroleum contract averages obtained from literature. Regardless of the fact that third party assessments attribute important volumes of hydrocarbon prospective resources to Uruguayan frontier basins (USGS 2011, 2012), there has never been a discovery in them yet and the geological risk is still significant. The main results of this work are that the terms of the contracts in force result in an average Government Take of approximately 70%, comparable with the Government Take of several hydrocarbons producing countries. Additionally, the calculated average Effective Royalty Rate was 9%, the Entitlement for the IOC averaged 52%, and the Savings Index resulted in 48%, all of them among worldwide standards. The Uruguayan fiscal system proved to be progressive, revealing state-of-the-art fiscal design. The overall conclusion is that the Uruguayan fiscal regime is fair (or could even be regarded as too harsh) considering the geological risk of the country's basins. This work is useful for petroleum companies interested in assessing the hydrocarbon exploration and production potential of Uruguay, to easily compare the contract economy and its fiscal regime with other destinations. Furthermore, it might provide good insight to authorities to understand the attractiveness of the Uruguayan petroleum fiscal regime for design improvements.