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Mr. James L. Smith
We present a simple model of petroleum exploration and development that can be applied to study the performance of alternative tax systems and identify potential distortions. Although the model is a highly simplified, it incorporates many factors and some of the key tradeoffs that would influence an investor’s investment behavior. The model recognizes the role of enhanced oil recovery and treats the impact of taxation on exploration and development in an integrated manner consistent with an investor’s joint optimization of investments at both stages of the process. The model is simple and user-friendly, which facilitates application to a broad range of problems.
Charles McPherson

and/or its management. In at least two major oil-producing countries, Angola and Indonesia, IOC operators have estimated that this kind of distortion of the procurement process has occasioned delays and increased industry standard costs in the order of 25 percent to 30 percent, while at the same time creating unnecessary tensions between the IOC and NOC. The increased costs represent a diversion of revenues away not only from IOC profits but also from the government’s budget to the NOC and/or its affiliates. Setting the Stage for Reform Widespread

International Monetary Fund. Middle East and Central Asia Dept.

of the Ministry of Oil to reduce pressure on struggling government finances (the government pays back investment and fees to IOCs). Low oil prices also triggered the renegotiation by the federal government of the existing service contracts, which may be modified to link IOCsprofits to oil price levels. Weak oil prices will also make IOCs less inclined to invest in expanding production. As a consequence, oil production targets are being revised downward . The Iraqi government aimed to increase oil production capacity to over 13 mbpd when it signed service

International Monetary Fund. Middle East and Central Asia Dept.
This 2015 Article IV Consultation highlights that Iraq is facing a double shock emerging from the ISIS insurgency and the plunge in global oil prices. In 2014, real GDP contracted by 2.1 percent mainly owing to the impact of the conflict, while oil production and exports increased slightly compared with 2013. In 2015, overall economic activity is expected to see a modest recovery of 0.5 percent thanks to oil sector expansion, while non-oil activity is expected to contract further. Medium-term growth prospects remain positive, though less favorable than before the crisis. Growth will be driven by the projected ramp-up in oil production and the rebound in non-oil growth supported by the expected improvement in security and implementation of structural reform.