Framework for Optimal Economic Exploration and Exploitation of Petroleum Resources in Cameroon

Abstract

Economic exploration and exploitation of petroleum resources is regarded as being optimal when the surrounding fiscal regime is mutually beneficial to both the government and the investors as well as other stakeholders, including petroleum host communities. Oil and gas in Cameroon started over forty years ago. This business however operates under old fiscal regimes forty or so years later. This research builds an economic model which incorporates the fiscal parameters governing petroleum exploration and production (E&P) activities to evaluate the petroleum fiscal regimes in Cameroon in terms of economic and system performance metrics, such as NPV, IRR and HGT. Stochastic simulation analysis using the @RISK simulation tool facilitates the impact of risk and uncertainty on the performance of petroleum investments in Cameroon. The effectiveness of the economic model is appraised through the adapted Cameroon decision guide as well as comparing with the existing model. Applying historical data from a nearby field, a hypothetical field under existing fiscal regime in Cameroon and an assumed cost profile, has a positive NPV of 46 million dollars. The earning power of the investment on the field, IRR is estimated as 40.2%. It is estimated that the attractiveness of the operating fiscal regime measured as FLI is approximately 0, reflecting a significantly progressive fiscal regime. The contractor take, government take statistics, respectively are estimated as 34.6% and 65.4%. On the other hand, for the proposed system, a contractor NPV of 48 million dollars, IRR of 40.9%, PI of 4, PO of 4, FLI of -0.007, contractor take of 35.8% and the government take of 64.2% were obtained from the deterministic model. Following the designed decision guide, all the profitability measures are in line with the profitable range and the investment is not front end loaded. Furthermore, an average increase of 5 million dollar is obtained in the NPV on stochastic basis for P10, P50 and P90, in comparison to the old system subject to the underlying cost assumption structure. Similarly, IRR is about 3% higher while the contractor and government takes are averagely higher by 1% for all 3 percentiles. This places the proposed system above the existing iv system since higher values are desired by both the contractor and the government. This proposed system can thus attract IOCS to invest more in Cameroon E&P activities.