Non-Discounted Cash Flow Method (NDCF)

Without taking into consideration the time value of money, cash inflows/outflows of the contract period are simulated at a certain level of oil price and output. Then, the appropriate deductions and allocations of the contract are made in line with the fiscal terms of the contractual system. Also, the proportion of the host nation's income to total project revenue in the whole project period is the non-discounted GT.

In the cash flow simulation, the equations will be varied in terms of the contractual policy used in different countries. In this research, Myanmar, Cambodia, Indonesia, and Vietnam adopt a production sharing contract (PSC) policy, while the U.S., Canada, Australia, and Mozambique practice the concessionary system. The differences between these two systems are discussed in Chapter 3. The calculations in detail are mainly based on the sample production sharing contract cash flow projection and sample concessionary system cash flow projection (Johnston 1994). The equations used in the PSC cash flow are

$$\text{Gross revenue} = \text{Oil/Gas production} \times \text{Revenue} \tag{3}$$

$$\text{Royalty} = \text{Gross revenue} \times \text{Rate of royalty} \tag{4}$$

Cost recovery or cost of oil/gas = intangible capital expenditure + operating expense

of

=

+ DD&A if gross revenue is greater than zero: up to a maximum rate (cost recovery (5)

revenue

revenue

	- Income Tax = Contractor (IOC) profit oil × Tax rate (8)

Contractor (IOC) After Net Cash Flow = Gross Revenue − Intangible cost − Tangible Capital Costs − Operating Expenses − Total profit oil + Contractor Profit Oil − Income Tax (9)

Consequently, the governmen<sup>t</sup> take (GT) is calculated according to Equation (1) as mentioned in Section 4.1.2. The cash flow simulations of Myanmar, Cambodia, Indonesia, and Vietnam obtained by using these equations are attached in from Tables S1–S8 in Supplementary Material. In regards to the equations for cash flow simulation for U.S., Canada, Australia, and Mozambique adopting the

concessionary system, the gross revenue and royalty are calculated through Equations (3) and (4) respectively. The remaining equations necessary for the concessionary system are

$$\text{Net revenue} = \text{Gross Revenue} - \text{Royalty} \tag{10}$$

Total Applied Deductions = If Intangible capital expenditure + Operating expense + DD&A is greater than or equal to Net revenue, then Net revenue, Otherwise Intangible Capital expenditure + Operating expense + DD&A (11) Taxable income = Net revenue − Intangible capital expenditure − Operating expense − DD&A (12) Income tax = If Taxable income is positive, Tax rate × Taxable income, otherwise (0) (13)

$$\begin{array}{l}\text{After Net Cash Flow} = \text{Gross Revenue} - \text{Royalty} - \text{Intangible capital expenditure} \\ - \text{Tangible Capital expenditure} - \text{Operating expense} - \text{Income Tax} \end{array} \tag{14}$$

$$\text{NCF (Gov)} = \text{Royalty} + \text{Income Tax} + \text{Resoure Return} \,\text{Rent Tax} \tag{15}$$

$$\text{NCF} \left( \text{IOC} \right) = \text{AfterNetCash Flow} - \text{Royality} - \text{Income Tax} - \text{Resource Rent Tax} \tag{16}$$

Finally, GT is calculated in accordance with Equation (1) for the PSC cash flow. Likewise, the cash flow simulations of the U.S., Canada, Australia, and Mozambique obtained by using these equations are attached. Since the concepts of GT by the fast and intuitive method and those of GT by NDCF are similar due to lack of consideration of the time value of money, the average assumption of these two results are represented as GT.

### 4.1.3. Government Take (GTi) through Discounted Cash Flow Method (DCF)

In addition to the two methods for GT mentioned above, this study also takes into account, the DCF for the consideration of time value of money due to long project life. The DCF method, which calculates the discounted host national take, is based on a certain discounted rate. The cash inflow/outflow 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/gas project is calculated as per a certain discount rate. The formula is

$$\text{GTi} = \text{NCF(Gov)} \left(1 + \text{i}\right)^{-\text{t}} / \left(\left(\text{NCF(Gov)} + \text{NCF(IOC)}\right) \left(1 + \text{i}\right)^{-\text{t}} \times 100\text{\%} \tag{17}$$

where i refers to the discount rate, t means time and GTi is the host governmen<sup>t</sup> take at i discount rate.

The DCF cash flow spreadsheets of each country's GTi are attached from Tables S1–S17 in Supplementary Material. GT is calculated by the fast-intuitive method and NDCF. The GTi which is calculated by the DCF can reflect the attractiveness of upstream oil and gas fiscal regimes in different contracts to some extent. However, these methods have a significant flaw in the comparison by different fiscal terms combinations. The method can only reflect the total amount of the host nation's income without considering the influence of different time sequences of income acquisition by the host nation on the benefit of IOC and the attractiveness of the contact. Therefore, it can be established that there is a huge gap result between the GT and the GTi. This gap shows that the time sequence differences of income acquisition by host nations will affect the benefit of the host nation and IOCs, as well as impact on the attractiveness sequences of the oil and gas fiscal terms.
