*3.3. Host Government Take (GT)*

Government take (GT) is one of the most important criteria in making comparative analysis among worldwide petroleum fiscal systems and calculated in various ways in the petroleum industry (Boodoo 2012). GT puts the impacts of several fiscal regimes such as bonus, royalties, profit split, and taxation of all levels, governmen<sup>t</sup> equity participation and other factors into one indicator. In other words, GT is defined as the proportion of the host nation's income from investment project to the total project revenue within the valid period of the contract (Luo and Yan 2010). GT measures how much the governmen<sup>t</sup> takes through upstream petroleum fiscal terms as analyzed in previous studies by Kaiser and Pulsipher (2004), Iledare and Kaiser (2006), Adenikinju and Oderinde (2009), Hao and Kaiser (2010), Kemp and Stephen (2011, 2012), Manaf et al. (2014), and Sen (2014). In the aforementioned studies, GT is calculated through a cash flow model based on historical data or reasonable assumptions combined with the given parameters in the fiscal system.

### *3.4. Non-Discounted Cash Flow Method (NDCF) and Discounted Cash Flow Method (DCF)*

Without taking time value of money into consideration, cash inflows and outflows of the contract period are simulated at a certain level of oil price and output. Consequently, the appropriate deductions and allocations of the contract are made in line with the fiscal terms of the contractual system, and the

proportion of the host nation's return to the total project revenue within the whole project period is the non-discounted GT (Johnston 1994). The formulae necessary for the computation of NDCF as well as DCF cash flows in the whole project life are based on the economic rent concept. The results of cash flow model can be used by an investor to assess the profitability of a project and establish how much GT for the host country.

According to Wenrui et al. (1999), the discounted cash flow (DCF) method for the consideration of time value of money is considered for the calculation of GT, as the project life cycle of the oil and gas E&P projects lasts generally more than 20 years. The best way to calculate GT requires detailed economic modelling using cash flow analysis (Johnston 2008).

The DCF method is calculated for the discounted host nation take based on a certain discounted rate. Cash inflow/outflow time of the host nation during the project life is simulated at a certain level of oil price and output. Moreover, the present value of the host nation's income during the entire life of the oil and gas project is calculated as per a certain discount rate (Luo and Yan 2010). DCF can be used to show how the tax take is calculated (Nakhle 2004). Furthermore, DCF method has been mostly applied in previous studies and is currently used by IOCs (Emhjellen and Alaouze 2001). According to Siew (2001), it has been found that 99% of IOCs used this DCF technique. In addition, the most common technique widely used for project evaluation in energy industry has been the DCF for several decades (Laughton et al. 2000).

Wenrui et al. (1999) measured the profitability of upstream oil and gas projects by two systems measures: NPV<sup>2</sup> and IRR<sup>3</sup> through a cash flow model. However, building a cash flow model takes some time and needs several data inputs. Moreover, a constantly discounted factor in DCF can overestimate the project profitability. Kaiser and Pulsipher (2004) developed an analysis of upstream fiscal regime by the real options theory to overcome the weakness of DCF. However, since this research considers the combination effect with the opinions of decision makers for the evaluation method, it is necessary to use the most commonly applied method. Thus, about 99% of DCF is widely used by IOCs and was applied in this study.
