While a mature region, Brunei has lagged region peers in competition for investment. However, the government has, and continues to make, significant reforms to attract independent E&P. However, access for smaller independent operators appears to have stalled, hence our outlook downgrade to Neautral.
August 30, 2022
Asia - South East
Southeastern Asia, along the northern coast of the island of Borneo, bordering the South China Sea and Malaysia
Production Sharing Contract (PSC)-based fiscal regime. The Government has the option to back-in for a 15% equity stake at the time of first production. Cost recovery is limited to 80% of gross oil and gas revenues in deepwater PSCs in any one year, whilst profit oil splits are biddable on a tiered system based on oil production rates. Corporate income tax, and a range of bonuses, rentals and fees, are payable. All production in Brunei is currently governed by older concession terms, but PSC is the preferred system for recent and future licensing. Petroleum Brunei is eager to play a more active role in Upstream projects, and may seek to obtain a larger equity share in future developments. The Brunei/Malaysia disputed acreage will likely be licensed using the a variant of the Deepwater PSC. Profit splits between the two countries are unknown at present.
Despite senior Bruneian leaders’ repeated calls for diversification, Brunei’s economy remains dependent on the income derived from sales of oil and gas, contributing about 60% to the country’s GDP. Substantial revenue from overseas investment supplements income from domestic hydrocarbon production. These two revenue streams provide a comfortable quality of life for Brunei’s population. Citizens are not required to pay taxes and have access to free education through the university level, free medical care, and subsidized housing and car fuel. Brunei has a stable political climate and is generally sheltered from natural disasters. Brunei’s central location in Southeast Asia, with good telecommunications and airline connections, business tax credits in specified sectors, and no income, sales, or export taxes, offers a welcoming climate for potential investors. Sectors offering U.S. business opportunities in Brunei include aerospace and defence, agribusiness, construction, petrochemicals, energy and mining, environmental technologies, food processing and packaging, franchising, health technologies, information and communication, digital finance, and services.
Source: ESRI, Heritage Index, HMG Foreign & Commonwealth Office, US Department of State, International Trade Administration, International Law Review, Ernst & Young, Wood Makenzie & OGA data.
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