Mongolia’s fiscal terms attractive for investors, says GlobalData

The fiscal and regulatory provisions for upstream oil and gas sector in Mongolia is attractive for investors, especially following the recent clarification of legal framework on the exploration and production (E&P) operations, says research and consulting firm GlobalData (GD) in its recent report.

GD’s latest report points out that the new Petroleum Law, which was passed in July 2014, has made only few important changes to fiscal and regulatory regime for the conventional hydrocarbons sector, but for the first time, it has made provisions for unconventional hydrocarbons in detail.

A particular fiscal incentive is a 10% royalty, rather than 15% for conventional resources; nevertheless, the flexibility of the Production Sharing Contract (PSC) framework means that contractors would be able to negotiate better production sharing terms for unconventional hydrocarbons.

GlobalData upstream fiscal analyst Will Scargill said: "This is an important step for Mongolia, where there is growing interest in oil shale resources. The government has already started to sign agreements with investors for shale oil extraction pilots, envisaging conversion to a PSC once commerciality is established.

"The law also offers longer contract periods for unconventional compared to conventional operations, which are likely to prove an incentive to investors. The exploration phase can last for up to 15 years, three years longer than normal, and the production phase is extended from 25 to 30 years."

Moreover, under PSCs grants, the fiscal framework for conventional hydrocarbons offers an investor higher share of revenue than in other countries containing similar reserve levels.

Scargill adds: "Mongolia reports proven reserves of 2.4 billion barrels of oil.

"However, the lack of infrastructure to commercialise reserves is a significant problem. Combined with the relatively unexplored nature of much of the country, this means that significantly increased competition for acreage is unlikely in the medium term and should keep the negotiated fiscal terms in conventional PSCs relatively stable."