Fiscal & Financial Arrangements

Taxation and Royalties

The government's take in profits from the sale of natural gas is made up of three components:

1. Corporate Income Tax (CIT) – 23% as of 2022.

2. Royalties - 12.5% from the market value at the wellhead, collected from the beginning of production. The royalties are deductible as expenses for the petroleum profit levy (see below).

3. Petroleum Profit Levy – enacted in the Petroleum Profit Tax Law of 2011. The profit levy only comes into effect after a 150% return on the initial investment. It is a progressive tax, ranging from 20% to 50% according to the increase in profits, and is based on an R Factor formula, as follows:

R Factor = Net cumulative revenues / Exploration and development expenses

Total government take including the three components listed above is estimated at 52-62%.

Other Financial Requirements

  • Basic License Guarantee – license holders are required to submit a guarantee of USD 0.5mn (onshore) or USD 2.5mn (offshore) for each license. This amount may be amended in accordance with the terms of each OBR.
  • Additional License Guarantee - Prior to drilling, license holders will be required to submit an additional guarantee of at least USD 0.5mn (onshore) or USD 5mn (offshore), which may vary according to the level of risk associated with the planned drilling.
  • Lease Guarantee – a minimum of USD 1.5mn (onshore) or USD 7.5mn (offshore).
  • License/Lease Fees - Each license or lease holder (onshore and offshore) is charged an annual fee based on the size of the plot and the length of the license / lease period. The annual fee varies from USD 10,000 to USD 120,000. For example, a 400 km² offshore license the annual fee for the first year will be USD 11,500, up to a maximum charge of USD 116,000 in the seventh year of the license.
  • Insurance - A license or lease holder will have to present insurance in accordance with the type of activity performed and the Petroleum Commissioner guidelines.​

Disclaimer: This information on petroleum and general taxation arrangements is provided as a guide only and independent legal and/or taxation advice should be sought prior to making any commercial decisions.