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Kazakhstan Upstream Fiscal and Regulatory Report – Alternative Subsoil Tax Regime Looks to Incentivize Offshore and Deep Reservoir Development

Pages: 37 Published: May 26, 2018 Report Code: GDGE0140UFR

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Although Kazakhstan’s general fiscal terms for upstream oil and gas have remained stable in recent years, the government has progressed changes to the legal and regulatory framework. A new tax code and subsoil code were passed at the end of 2017 and besides a number of changes to the regulatory framework, the most significant change is the introduction of the alternative subsoil tax regime for offshore areas and deep reservoirs. Further regulatory shifts may be expected in the medium term as the government continues its ongoing reform program.

“Kazakhstan Upstream Fiscal and Regulatory Report – Alternative Subsoil Tax Regime Looks to Incentivize Offshore and Deep Reservoir Development”, presents the essential information relating to the terms which govern investment into Kazakhstan’s upstream oil and gas sector. The report sets out in detail the contractual framework under which firms must operate in the industry, clearly defining factors affecting profitability and quantifying the state’s take from hydrocarbon production. Considering political, economic and industry specific variables, the report also analyses future trends for Kazakhstan’s upstream oil and gas investment climate.

Scope

Overview of current fiscal terms governing upstream oil and gas operations in Kazakhstan

Assessment of the current fiscal regime’s state take and attractiveness to investors

Charts illustrating the regime structure, and legal and institutional frameworks

Detail on legal framework and governing bodies administering the industry

Levels of upfront payments and taxation applicable to oil and gas production

Information on application of fiscal and regulatory terms to specific licenses

Outlook on future of fiscal and regulatory terms in Kazakhstan

Reasons to Buy

Understand the complex regulations and contractual requirements applicable to Kazakhstan’s upstream oil and gas sector

Evaluate factors determining profit levels in the industry

Identify potential regulatory issues facing investors in the country’s upstream sector

Utilize considered insight on future trends to inform decision-making

Table of Contents

1. Table of Contents

1. Table of Contents 1

1.1. List of Tables 3

1.2. List of Figures 4

2. Regime Overview 5

3. State Take Assessment 9

4. Key Fiscal Terms- Royalty/Tax Subsoil Use Contracts 10

4.1. Bonuses and Fees 10

4.1.1. Signature Bonus 10

4.1.2. Commercial Discovery Bonus 11

4.1.3. Historical Cost Compensation 11

4.2. Mineral Extraction Tax 11

4.2.1. General Rates 11

4.2.2. Rates for Low-Profit, High-Viscosity, Water-Flooded, Marginal and Depleted Fields 12

4.3. Export Taxes 15

4.3.1. Rental Tax on Exports 15

4.3.2. Export Duty 16

4.4. Direct Taxation 17

4.4.1. Corporate Income Tax 17

4.4.2. Branch Profit Tax 17

4.4.3. Excess Profit Tax 17

4.4.4. Deductions and Depreciation 18

4.4.5. Withholding Tax 19

4.5. Alternative Tax on Subsoil Use 19

4.6. Indirect Taxation 20

4.6.1. Value Added Tax 20

4.6.2. Property Tax 20

4.6.3. Land Tax 20

4.6.4. Import Duties 20

4.6.5. Environmental Levy 20

4.7. Liquidation Fund 22

4.8. State Participation 22

5. Key Fiscal Terms – Production Sharing Agreement 23

5.1. Royalties, Bonuses and Fees 23

5.1.1. Bonuses 23

5.1.2. Social Contributions 23

5.1.3. Training Contributions 23

5.1.4. Royalty 24

5.2. Cost Recovery 24

5.3. Profit-Sharing 24

5.3.1. 2005 PSA Model 25

5.3.2. North Caspian Sea PSA 25

5.3.3. Chinarevskoye PSA 26

5.4. Export Duty 26

5.5. Taxation 27

5.5.1. Corporate Income Tax 27

5.5.2. Deductions and Depreciation 27

5.5.3. Top Up Tax 27

5.5.4. Tax Exemptions 27

5.6. Stabilization 28

6. Regulation and Licensing 29

6.1. Legal Framework 29

6.1.1. Governing Law 29

6.1.2. Contract Type 30

6.1.3. Title to Hydrocarbons 30

6.2. Institutional Framework 30

6.2.1. Licensing Authority 31

6.2.2. Regulatory Agency 31

6.2.3. National Oil Company 31

6.3. Licensing Process 31

6.4. License Terms 32

6.4.1. Duration 32

6.4.2. Work Obligations 32

6.4.3. Local Content 32

6.4.4. Domestic Market Obligation 33

6.5. Environmental Regulation 33

7. Outlook 34

8. Appendix 35

8.1. References 35

8.2. Contact Us 36

8.3. Disclaimer 36

List of Tables

1.1. List of Tables

Table 1: Regime Overview 5

Table 2: Kazakhstan, Monthly Calculation Index (MCI) 10

Table 3: Kazakhstan, MET Rates – Oil (%) 11

Table 4: Kazakhstan, MET Rates – Natural Gas (%) 12

Table 5: Kazakhstan, Reduced Oil MET Rates – High Viscosity (%) 13

Table 6: Kazakhstan, Reduced Oil MET Rates -Water-Flooded (%) 13

Table 7: Kazakhstan, Reduced Oil MET Rates -Depleted Fields (%) 14

Table 8: Kazakhstan, Reduced Oil MET Rates -Marginal (%) 14

Table 9: Kazakhstan, Rental Tax on Export Rates (%), 2009 onwards 15

Table 10: Kazakhstan, Oil Export Duty Rates, March 2016 onwards 16

Table 11: Kazakhstan, Oil Export Duty Rates (US$/tonne), April 2008-February 2016 17

Table 12: Kazakhstan, Excess Profit Tax Rates (%), 1998 onwards 18

Table 13: Kazakhstan, Excess Profits Tax Rates – Kenbay, 1996 18

Table 14: Kazakhstan, Depreciation Rates by Asset Class (%), 2009 onwards 19

Table 15: Kazakhstan, Alternative Tax on Subsoil Use Rate (%) 20

Table 16: Kazakhstan, Environmental Levy – Emissions from Stationary Sources, 2018 21

Table 17: Kazakhstan, Environmental Levy – Gas Flaring Rates, 2018 21

Table 18: Kazakhstan, Environmental Levy – Charges for Emissions Of Pollutants into the Air from Mobile Sources 22

Table 19: Kazakhstan, North Caspian Sea PSA, Bonuses (US$ mil) 23

Table 20: Kazakhstan, Chinarevskoye PSA, Royalty Rates (%) 24

Table 21: Kazakhstan, 2005 PSA Model, Profit-Sharing State Share(%) 25

Table 22: Kazakhstan, North Caspian Sea PSA, Profit-Sharing State Share, R-factor and Real IRR (%) 25

Table 23: Kazakhstan, North Caspian Sea PSA, Profit-Sharing State Share, Volume factor (%) 26

Table 24: Kazakhstan, Chinarevskoye PSA, Profit-Sharing State Share (%) 26

Table 25: Kazakhstan, North Caspian Sea PSA, Tax Rate (%) 27

Table 26: References 35

List of Figures

1.2. List of Figures

Figure 1: Regime Flow Chart – Royalty/Tax Subsoil Use Contract 6

Figure 2: Regime Flow Chart – Royalty/Tax Subsoil Use Contract Alternative Subsoil Tax (Offshore & Deep Reservoirs) 7

Figure 3: Regime Flow Chart – Production Sharing Agreement (2005 Model) 8

Figure 4: Kazakhstan, Indicative NPV10/boe, IRR and State Take Comparison, Regional 9

Figure 5: Kazakhstan, Legal Framework 29

Figure 6: Kazakhstan, Institutional Framework 30
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