Chapter 1: Introduction

Introduction
A tax is a financial charge or other levy imposed upon a taxpayer (an individual or legal entity) by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many administrative divisions. Taxes consist of direct or indirect taxes and may be paid in money or as its labor equivalent. Tax assessment is very important for every sector. In this report tax assessment process of il and !as Industry" has been discussed. The supply of gas as a primary source of energy will be dried out soon if immediate steps are not ta#en for exploration of new gas fields and extraction thereon. In the use of commercial energy$ %xploration activities carried out so far could not discover any significant oil deposit. The only oil deposit so far has been discovered in the country. !as and oil is an important resource of any country. The oil production has since ceased because of reduction of pressure and influx of water in the oil &one. 'omprehensive exploration efforts need to be mounted in this field. (angladesh is poor in natural resources by global standards. )atural gas is the most important natural resource that has been discovered and being utili&ed. clay. The development of the oil and gas sector is vital for further strengthening of the national economy. %xpansion of the energy sector since the *+,-.s is mainly attributed to increased natural gas production. The presence of )atural !as in (angladesh has been established through exploration by (angladesh"s public energy company$ /etrobangla$ and more recently international oil and gas companies (I 's) have established the existence of a significant energy. ther important discoveries include coal$ peat$ hard roc# and modest reserves of limestone$ gravel$ glass sand and various types of

Origin of the Study )ow0a0days academic education is not enough to enable students to compete with confidence and reach their goal. In order to have idea and gain practical experiences$ about the managerial and leadership issue in an organi&ation we have done this study on" !as 1 mandatory course of 2asters of (usiness Administration program. il industry and its tax assessment process" to complete the course requirement of (usiness Taxation" which is a

Background of the Study To #now about how oil and gas industry ma#e their assessment about taxation$ this report has been prepared. The study was conducted on the oil and gas industry of (angladesh. The industry is divided into several sub0sectors namely oil$ gas$ petroleum$ coal etc. This report intends to find out the mar#eting$ technical$ financial and strategic aspect of the oil and gas industry of (angladesh 3evelopment of any country depends on its natural resources. )atural resources occur naturally within environments that exist relatively undisturbed by humanity$ in a natural form. )atural recourses are !as$ il$ and %nergy etc. They are the valuable resources of the country. )atural ther gas is the most important natural resource that has been discovered and being utili&ed.

important discoveries include coal$ peat$ hard roc# and modest reserves of limestone$ gravel$ glass sand and various types of clay. %nvironmental issues and problems in (angladesh are now recogni&ed as the #ey concerns for the sustainable development of the country. 2agurcherra gas field$ , #m from 4rimangal on the road to #amalgan5. The gas field caught fire in *++6 and was abla&e for three months$ laying waste to betel0nut plantations and tea estates in the vicinity (2cAdam$ 7--,).

Objectives Broad Objectives: *. To fulfill the course requirement. 7. To gain practical #nowledge about !as and il Industries. 8. To prepare a guideline so that it is useful to the organi&ation. 9. To relate theoretical #nowledge with the practical situation Specific Objectives: To find out the demand0supply gap in the industry To find out the profitability of the industry To study the performance of the industry in (angladesh. To find out the different ris# parameters and environmental issue associated with this industry Identify what to do and what not to do from Tax authority"s point of view. Identifying the present situation in the !as 1 il Industry. To understand how the information disseminate to the entire department. /reviewing the future prospect level of the !as 1 il Industry.

Methodology The study can be divided in two stages. In the first phase$ exploratory research was underta#en to gain better understanding of the industry. The study started with secondary data and information collection regarding the oil and gas industry. The second phase of the research process was a causal research. The researcher tried to analy&e the growth prospect of this sector$ the strengths and wea#nesses of the sectors$ and the opportunities and threats that might affect the growth for the industry.
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In this study information about the following things are gathered: ; !ross Income and perating %xpenses ; <emaining %conomic =ife of /roperty ; <eal /roperty Taxes ; )et Income ; 3epreciation ; 3epletion ; Income and ther Taxes ; 'apital Investment ; <ate of <eturn

Source of Information:
rimary: The primary information will be collected through> /rimary 4ources of 3ata> Informal conversation with the wor#ers. ?ace to face conversation with the officers and staffs %xposure on different des# of the organi&ation.

3irect involvement in the !eneral (an#ing activities in %xim (an# =imited Secondary: The secondary information was gathered from> 4econdary 4ources of 3ata> <aw data of /etro bangla. @npublished data. 3ifferent textboo#s.
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(usiness 5ournal. 3ifferent websites.

)ewspapers. !ype of Study: The study can be divided in two stages. In the first phase$ exploratory research was underta#en to gain better understanding of the industry. The study started with secondary data and information collection regarding the oil and gas industry. The second phase of the research process was a causal research. The researcher tried to analy&e the growth prospect of this sector$ the strengths and wea#nesses of the sectors$ and the opportunities and threats that might affect the growth for the industry. In this study information about the following things are gathered ; !ross Income and perating %xpenses ; <emaining %conomic =ife of /roperty ; <eal /roperty Taxes ; )et Income ; 3epreciation ; 3epletion ; Income and ther Taxes ; 'apital Investment ; <ate of <eturn

"imitations The companies considered many of the information required as highly confidential and sometimes it was difficult to interview the clients. 2any respondents were afraid of providing actual data.

Chapter #: Overvie$ of the energy sector of Bangladesh

%nergy sector of Bangladesh:

In recent times$ establishment of important physical infrastructures$ setting up of new power plants and the pace of industriali&ation in the country has slowed down due to energy supply shortage. The sluggish industriali&ation which has hindered development activities is apprehended to create a negative impact on employment and consequently on the people"s livelihood. This dismal state of energy sector has resulted from lac# of initiatives and insufficient investment in the sector during the past years. <eali&ing the necessity for its improvement$ the present government has indicated energy sector as a priority sector.

!he roportion of using energy in Bangladesh 3ifferent types of energy are available in (angladesh. A brief review is given below> &on'rene$able energy The proven reserve of natural gas which is the principal source of nonrenewable energy of the country is gradually depleting. The supply of gas as a primary source of energy will be dried out soon if immediate steps are not ta#en for exploration of new gas fields and extraction thereon. In the use of commercial energy$ the notable ones include the following> i. ii. iii. iv. v. )atural gas il from minerals and other sources 'oal and coal li#e substance 'ompressed natural gas (')!) )atural !as =iquid ()!=)

 (ene$able %nergy In our country renewable energy such as biomass$ solar power and wind power are being used since time immemorial. %specially in areas which are outside gas coverage$ usage of biomass for coo#ing and solar power and wind for drying of different grains as well as clothes are #nown to all. Aowever$ we are still lagging far behind in the scientific use of such energy. 2oreover$ the use of renewable energy has become popular worldwide in view of depleting reserve of non0 renewable fossil fuel. <enewable energy is environment0friendly. At present$ the different categories of renewable energy that are being used in limited ways in our country are as follows> i. ii. iii. iv. v. Aydro0electricity 4olar power generation using solar rays Bind0mill power generation using wind power /roduction of bio0gas using waste %lectricity produced by (iomass !asification 2ethod using wood$ rice hus#$ etc

otential Sources of &atural (esources &atural )as ne of the country.s few mineral resources is natural gas$ which is the basis for nitrogenous fertili&er production sufficient to meet the country.s needs. %stimated national reserves range from *,7 billion to C78 billion cubic meters. 3eposits lie in more than a do&en different locations$ six of which were producing in *+,C. The country.s gas production is concentrated in the northeastern part of the country. <eserves also have been discovered offshore$ but extraction is not yet cost effective. Oil %xploration activities carried out so far could not discover any significant oil deposit. The only oil deposit so far discovered in the country is in Aaripur which produced a total of about -.CD million barrels of crude oil till *++9. The oil production has since ceased because of reduction of

pressure and influx of water in the oil &one. 'omprehensive exploration efforts need to be mounted in this field.

Coal 3iscovery of coal dates bac# to late fifties$ when an exploratory oil well was drilled through coal beds in (ogra. 4ubsequent explorations resulted in the discovery of the Eamalgon5 coal deposit at a depth of about *$--- meters from the ground level and having an estimated reserve of more than *$--- million tons of coal. ?easibility studies have indicated that the development of this deposit is not yet feasible under the prevailing international mar#et price. Aowever$ with the increase in gas price$ these deposits may become competitive. After evaluation of a detailed geological and geophysical survey$ !eological 4urvey of (angladesh (!4() identified *8 locations in the region of greater <angpur and 3ina5pur districts as the prospective basins for coal exploration. eat 3eposits of peat occur at shallow depths in different low lying areas of (angladesh. According to the !eological 4urvey of (angladesh$ the reserve of dry peat is about *6- million tons. The ma5or deposits are in greater districts of ?aridpur (*D- million tons)$ Fhulna (, million tons) and 4ylhet (*8 million tons). /eat requires drying before ma#ing briquettes for use as fuel. A pilot pro5ect for extraction of peat and ma#ing briquettes was implemented by /etro (angla$ but the results were not encouraging and extraction was assessed as economically not viable. Aowever$ in future$ this resource may be viable as and when prices of other fuels rise. *ard rock and "imestone Aard roc# was discovered by !4( in 2adhyapara area of 3ina5pur 3istrict in *+C9 at a depth of 7,D meters from surface. An agreement was signed with )orth Forea in *++8 for the opening of an underground hard roc# mine with a target production of *.C million tons per annum. The hard roc# mine is expected to come into operation by the year 7---G-*. 2adhyapara hard roc# will be used for river training$ heavy construction wor#$ railway ballast$ highway$ etc. The granite slabs excavated from this mine can also be used as polished tiles and paving. /resently these are imported.'onsiderable import substitution and increased revenue earning may$ therefore$ be
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expected from this roc#. =imestone has been found at Eoypurhat and some other places of 4ylhet district. The production of sub0surface limestone of Eoypurhat is yet to materiali&e. etroleum (angladesh holds un#nown quantities of commercially exploitable reserves of petroleum$ both on land and offshore. In 3ecember *+,C$ oil was discovered in the Aaripur gas field$ south of the city of 4ylhet$ in northeastern (angladesh. =uc#y Bell )umber 4even promptly went into production at the rate of several hundred barrels per day$ the first commercial oil production in (angladesh. The crude was shipped by rail to the %astern <efinery in 'hittagong$ where it was combined with other lighter imported crude oil for refining. The %astern <efinery had been operating at 5ust CC percent of capacity and processing 89$--- barrels of crude per day. The domestic addition did not in itself have much of an impact on energy use in (angladesh$ but it was a beginning that fed hopes for further development. In the late *++-s$ the (angladesh il$ !as$ and 2inerals 'orporationwas carrying on further test drilling in western (angladesh as well as in the vicinity of the successful Aaripur stri#e. The government formed a high0level committee under the minister of energy and mineral resources to formulate recommendations for stimulating oil exploration and extraction in (angladesh. In *++6 the @.4.A. signed protocol to provide assistance for oil exploration$ a broadening of its traditional cooperation in the field of power generation$ transmission$ and distribution. &atural )as and Oil %+ploration )ational /etroleum /olicy which came into force from Euly *++8 has already attracted foreign investment in oil and gas exploration and development. ?ive international oil companies have signed production sharing contracts for exploration and development of hydrocarbon. The five companies are> i. ccidental %xploration of (angladesh =td. ii. ccidental of (angladesh iii. 'airn %nergy /=' and Aolland 4ea 4earch (angladesh iv. <exwood a#land v. @nited 2erridian International 'orporation (@2I')
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Chapter ,: Overvie$ of Oil and )as Industry in Bangladesh

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Current production 'urrently$ gas production per day is 7--- 22'? in our country. Imported oil accounts for the lion"s share of the rest of the energy requirement. ur annual requirement of fuel is approximately 8.6 million metric ton. The present per0capita consumption of non0renewable energy resources in (angladesh is about C9 Filogram of il %quivalent (F! %) which is one of the lowest in the world. /er0capita energy use in F! % is *78 in 4ri =an#a$ 78C in India and 7C6 in /a#istan. f the total non0renewable energy consumption$ about C- per cent is derived at present from indigenous resources and the rest is met from imported petroleum and coal. 2oreover$ the entire reserves of exploitable indigenous primary energy resources are located in the east &one$ thereby resulting in a gap in energy supply between the east and west &ones.

&e$ly discovered gas fields A brief description of some newly discovered gas fields is given below> Saldanadi )as -ield 4aldanadi gas field is situated along the India0(angladesh border under Fashba Thana of (rahmanbaria district. The structure was selected for exploratoryGappraisal drilling after evaluation of seismic data collected during *++*G+7 field season by (A/%H. Accordingly$ drilling was underta#en in *++C and a prospective gas reserve was discovered at a depth of 7$D** metres. After reviewing the data$ a preliminary estimate of gas reserve was given at -.7-7 T'?.

Shahba.pur )as -ield 4hahba&pur field is located in the central part of 4hahba&pur island of (hola district. The location was selected for exploratory drilling after evaluation of seismic data collected during *+,CG,6 field season. 4hahba&pur well was spudded in 3ecember$ *++8 and in 9 months$ a depth of 8$C8* metres was reached. 3ue to encountering of over pressure$ the well had to be abandoned after flowing gas through coil tubing from interval 8$7-*08$7*- metres. 4ubsequently$ it was decided to drill a side0trac# hole. After drilling of side0trac#ing hole down to 8$897 metres$ commercial gas flow was ensured. Analysis of results obtained from vertical and side0trac# drillings indicated an in0place reserve of -.D*8, T'?
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Shangu )as -ield (angladesh !overnment signed a /roduction 4haring 'ontract (/4') with 'airn %nergy and Aolland 4ea 4earch for oil and gas exploration in 'hittagong and its ad5acent coastal areasThe first well was drilled down to the depth of 8$D-- metres and four gas &ones were reached. %xamination of two &ones indicated the presence of significant amount of gas and 4hangu was declared a gas field. Then the second well was drilled to estimate the gas reserve and a reserve of -.,9, T'? was determined and to exploit the gas reserve$ development of the field was planned. To ma#e it commercial$ plan was prepared to drill additional production wells$ construct platform and install pipelines and processing plants. After successful completion of all these activities$ it is expected that the production of natural gas from this field will be possible from April$*++,.

atharia Oil and )as %+ploration /ell /atharia area is located in the north0eastern part of (angladesh under (arale#ha Thana of 2oulviba&ar district. After evaluation of seismic data and gravity survey$ the location was selected for exploratory drilling. 3rilling of one exploratory well with 4audi assistance was planned during the Third /lan period. /atharia well was spudded in *+,+. The well was designed to be drilled down to a depth of D$--- metres. Aowever$ due to several changes in casing points and whole deviation$ it could reach only down to 8$98, metres. Then the drilling was terminated for deterioration of casing due to frequent reaming$ slow drilling rate and ris# factor in continuation of drilling.

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Chapter 01: !a+ 2ssessment of Oil and )as Industry

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2ssessment of Oil 3 )as

il and gas producing properties are assessed as economic units. An economic unit encompasses all real property$ associated with the exercise of oil and gas rights$ including the un extracted oil and gas$ oil and gas rights$ and any and all wells$ equipment$ fixtures and pipeline$ necessary to drill$ mine$ operate$ develop$ extract$ produce$ collect$ deliver or sell the oil or gas to a point of sale to a commercial purchaser$ a pipeline or equipment of a user. To compute the assessment of an oil and gas economic unit$ the assessor must multiply the amount of production by the appropriate unit of production value. The production used in the calculation is from the production year preceding the applicable taxable status date as reported by the producer. The result of this calculation must be multiplied by the most recent state equali&ation rate.

!ypes of Cost In case of oil and gas industry$ there are 8 main types of cost. These are 0 *. %xploration 'ost > This include drilling cost$ depletion$ seismic survey etc. 7. 3evelopment 'ost > It includes drilling cost$ well development cost etc. 8. =ifting 'ost > This includes labor cost.

2ccounting Method: There are 7 accounting method in oil and gas industry *. -ull Cost Method: It is traditional method. In this method %xploration and development cost whether successful or unsuccessful is charged as production cost (!overnment allow 8-I as amorti&ation) in income statement. Aere some cost is capitali&ed and go to balance sheet. 7. Successful 2fford Method: All cost is expenses and charged to income statement nothing is carry forward to balance sheet. 4uccessful portion is charged as production cost (!overnment allow 8-I as amorti&ation) in income statement. The unsuccessful portion is charged as operating expense in income statement.
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&atural )as f the various natural resources available$ natural gas in particular> a. supplies primary commercial energy for electricity generation to accelerate the pace of agricultural and industrial development and reduces the #itchen drudgery at the level of individual householdsJ b. helps in narrowing the deficit in the balance of payments by reducing import bill for oil$ coal$ etc.J c. mobili&es resources for the national exchequerJ and d. provides raw materials for the production of urea fertili&er and fuel for electricity generation. 'ontractor shall have the right to produce annually a total volume of !as up to 6.DI of the /roven <ecoverable !as reserves from onshore bloc#s. In case of offshore bloc#s a greater percentage may be agreed by /etrobangla and the 'ontractor. &atural )as for %+port 'ontractor shall have the right to export any 2ar#etable )atural !as produced from the 'ontract Area in the form of =iquefied )atural !as (K=)!K)$ sub5ect to first right of refusal of /etrobangla )as rice nshore gas> 6DI of A4? with biddable discounts. The price will have a floor of @4

L6-Gmetric ton and a ceiling of @4L*,-Gmetric ton of A4? ffshore gas (Type M A bloc#s)> 7DI higher than the onshore gas price ffshore gas (Type M ( bloc#s)> *--I of the A4? Bestern &one ( nshore)> 7DI higher than for the other onshore gas price.

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ipelines 'ontractor shall have the right to operate the /ipeline until cost recovery is completed. If /etrobangla$ so desires the 'ontract or shall continue to operate the /ipeline after the 'ost <ecovery. %xcept /etrobangla$ all parties who use the /ipeline downstream of 2easurement /oint shall pay *I tariff against their share of /etroleum transmitted through the pipeline for transmission service. Any tariff received will be paid to the account of /etrobangla. Aowever$ the 'ontractor will be exempted from paying tariff during cost recovery of the said pipeline. Title to the /ipeline(s) shall be with /etrobangla.

Cost (ecovery and rofit 2llocation Cost (ecovery 'ontractor shall recover all costs and expenses in respect of %xploration$ Appraisal and 3evelopment related operations. The 'ost <ecovery limit shall be maximum of fifty0five percent (DDI) per 'alendar Near of all Available Area. rofit Sharing The /rofit /etroleum shall be allocated between /etrobangla and 'ontractor in the following proportions> !ype 4 2 Block ilG'ondensateG)!=> (iddable from DDI to ,-I on tranches from *7$D-- to *--$--- bblGday or above !as> (iddable from DDI to ,-I on tranches from 6D to C-- mmscfGday or above. !ype 4 B Block ilG'ondensateG)!=> (iddable from D-I to 6DI on tranches from *7$D-- to *--$--- bblGday or above !as> (iddable from D-I to 6DI on tranches from 6D to C-- mmscfGday or above. il G)atural !asG 'ondensateG )!= from the 'ontract

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5aluation of etroleum ?or third party sales$ the value of petroleum will be reali&ed atarms length. If there have been no sales of 'rude determined as follows> on the basis of the ? ( selling price per (arrel of a bas#et of three 'rude ils n the basis of the spot mar#et for the same 'rude ils 4pot price and ? ( selling price will be ta#en from /latt.s /rice Index (A//I) !a+es and 6uties )o taxes will be imposed on materials and equipment related to /etroleum basis. 'ontractor shall be liable to pay including but not limited to the following> o 'orporate income tax o Income tax of employees of 'ontractor Income tax of sub0contractors> o 3uties and taxes on locally purchased goods and commercial services o Any levies or exaction in respect of property including leased property$ capital$ net worth$ operations$ remittances or transactions o 3uties and OAT on imported office equipment$ air conditioners$ refrigerators$ sedan cars and station wagons$ microbuses$ household utensils. o Oalue Added Tax and 4upplementary 3uty (if any) for goods and services purchased to implement /etroleum and the Oalue Added o Tax <ules$ *++* or as may be amended from time to time. perations as per provisions of the Oalue Added Tax Act. *++* perations brought into (angladesh by 'ontractor$ its subcontractors or by any agent on permanent or re0exportable ilgram or Asian /etroleum il to third parties at arm.slength$ the Oalue of il shall be

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Chapter 7: S/O! 2nalysis of Oil and )as Industry

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Strength !as$ the main source of commercial energy and plays an active role towards the growth of the economy. 'urrently$ about +- per cent of power generation is based on natural gas and the whole of the urea fertiliser requirements of the agricultural sector is met by using gas as feed stoc#. 'urrently Total gas production was 7.+ billion cubic meters$ with production rising at least *- percent per year The development of (angladesh.s natural gas resources has contributed to the reduction in deforestation The sector also contributed to an increase in tax revenue for the government through the levies /eaknesses It is estimated that minimum growth rate of about *- percent per annum in gas production will be required to meet the average !3/ growth target of 6 per cent per annum during the ?ifth /lan period. The existing gas infrastructure has limited capacity and needs to be expanded as per requirement. Opportunities ?or long0term gas supply commitments$ particularly for the planned power plants$ the government is encouraging private sector participation in the oil and gas exploration activities through the /roduction 4haring 'ontract (/4') with the International 'ompanies. (y conservative estimates of reserves and consumption trends$ the supply was expected to be adequate for (angladesh.s requirements through the year 7-8-. )atural gas output now accounts for about 6- per cent of the country.s commercial energy supply. 'urrent gas reserve (proven) has been estimated at about 77.+- T'? of which *8.C- T'? is considered as recoverable. 4o far 7.67 T'? has already been consumed and as of 4eptember *++C$ the recoverable reserve was *-.,6 T'?.
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il

!hreats Additional investment is$ required to enable (angladesh to utilise its available gas reserves and to increase exploration activities for new gas and oil fields. <eserves also have been discovered offshore$ but extraction is not yet cost effective. The development of the oil and gas sector is vital for further strengthening of the national economy.

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Chapter 8: Closing of the report

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(ecommendation 3 Conclusion:
il and gas industry plays an important role in our country. A huge amount of profit comes from this sector. To run other businesses properly$ gas and oil are needed. 4o to #now about their tax assessment process is very much important. ?rom our deep study through the information and data from various sources we would li#e to note that there is no sufficient tax assessment procedure for oil and gas industry in our country. (ut in the developed countries there are strong and effective procedures about this issue. And in this situation we have the pleasure to recommend that (angladesh authority can develop tax assessment procedure by ta#ing guidelines from the developed countries. Be #now there is huge political and economic debate about this issue. (ut it seems that if the governments develop assessment procedure and ta#e initiatives to collect tax from this industry the benefit will be higher than collection cost as (angladesh has a lot of natural resources. This initiative may reduce the government"s dependency on foreign aid and donation. In a word this sector is very prospective. 4o$ effective and efficient assessment process is needed in this sector. If proper steps are ta#en$ then this sector can be very much profitable for our country.

Bibliography:
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 Annual <eport of !as 1 il Industry 7-*7. 4everal (oo#lets from !as 1 il Industry. 4everal )ewsletters from !as 1 il Industry. Accounting report of !as 1 il Industry. 3ifferent publications regarding !as 1 il Industry. !as 1 il Industry official website.

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