Posted a few times previously and used in plenty of PSAs. Remembering this is not just for IVZ but any future producers also.
R Factor scale:
The share ratios could be set as fixed percentages for the lifetime of the PSA or as a progressive (or upwardly increasing) scale designed to increase the state's participation levels as the underlying project attains greater levels of daily production. Another way of creating a sliding scale of profit shares is the use of what is popularly known as an R factor (or Ratio factor). The R factor is arrived at by dividing the revenues from a project by the costs of that project, as below:
and then ascribing a particular profit share which is payable to the state to each band of the resultant R factor calculation.
At the start of the project, costs inevitably outweigh revenues and so the R factor will be zero or low. As the R factor increases (that is, as revenues increase, and increasingly outweigh costs in the later stages of the project), then the profit share in favour of the state increases. Thus the equilibrium of the original agreement is maintained, because as the net profitability of the IOC increases, the IOC's profit share reduces.
PSAs already in operation in the region:
Country and Estimated Govt. Take of Profits/Product
South Africa 40%
Namibia 50%
Malawi 50%
Zambia 53%
IVZ Price at posting:
8.6¢ Sentiment: Hold Disclosure: Held
