Royalties, cost

Royalty cost also is a factor in process selection. It varies with the individual plant under consideration hence, its economic significance cannot be evaluated in general terms. 

GAO and the pharmaceutical companies.21 All of the courts agreed that GAO had the authority to see cost data even if the prices were not negotiated. The courts also agreed that direct costs, such as manufacturing costs, royalty costs, and delivery costs were relevant to the contract and were therefore subject to GAO review.22 But, the courts were split on GAO s right of... 

For the MCB plant considered in Example 17.11, estimate the working capital and compute the total capital investment if land cost and royalty costs are zero, but the startup cost is taken as 2% of... 

During the first year of operation, startup costs may occur. During all years of operation, there may be royalty costs. At the conclusion of plant operations, there may be a salvage value for used equipment, Sequip. 

Fuel costs are essentially zero, except for royalty payments to land owners. These would generally be about 10% of the selling price of the power, which currently is nominally at avoided costs, in the 7 to 12 cents/kWh range. Thus, the royalty cost would be between 0.7 and 1.2 cents/kWh. (This royalty cost is actually more than nuclear fuel costs.)... 

There can be an element of maintenance costs that is fixed and an element which is variable. Fixed maintenance costs cover routine maintenance such as regular maintenance on safety valves which must be carried out irrespective of the rate of production. There also can be an element of maintenance costs which is variable. This arises from the fact that certain items of equipment can need more maintenance as the production rate increases. Also, royalties which cover the cost of purchasing another company s process technology may have different bases. Royalties may be a variable cost, since they can sometimes be paid in proportion to the rate of production. Alternatively, the royalty might be a single-sum payment at the beginning of the project. In this case, the single-sum payment will become part of the project s capital investment. As such, it will be included in the annual capital repayment, and this becomes part of the fixed cost. 

Keywords economic model, shareholder s profit, project cashflow, gross revenue, discounted cashflow, opex, capex, technical cost, tax, royalty, oil price, marker crude, capital allowance, discount rate, profitability indicators, net present value, rate of return, screening, ranking, expected monetary value, exploration decision making. 

Once production commences (possibly 3-8 years after the first capex) gross revenues are received from the sale of the hydrocarbons. These revenues are used to recover the capital expenditure (capex) of the project, to pay for the operating expenditure (opex) of the project (e.g. manpower, maintenance, equipment running costs, support costs), and to provide the host government take which may in the simplest case be in the form of taxes and royalty. 

Prior to the calculation of tax, certain allowances may be made against the gross revenue before applying the tax rate. These are called fiscal costs and commonly include the royalty, opex and capital allowances (which is explained later in this section). Fiscal costs may also be referred to as deductibles. 

Royalty is charged from the start of production, but tax is only payable once there is a positive taxable income. At the beginning of a new project the fiscal costs may exceed the revenues, giving rise to a negative taxable income. Whether the project can take advantage of this depends upon the fiscal status of the company and the project. 

Typically, the contractor carries the cost of exploration, appraisal and development, later claiming these costs form a tranche of the produced oil or gas ( cost oil ). If the cost oil allowance is insufficient to cover the annual costs (capex and opex), excess costs are usually deferred to the following year. After the deduction of royalty (if applicable) the remaining volume of production (called profit oil ) is then split between the contractor and the host government. The contractor will usually pay tax on the contractor s share of the profit oil. In diagrammatic form the split of production for a typical PSC is shown in Figure 13.11. 

The manufacturing cost consists of direct, indirect, distribution, and fixed costs. Direct costs are raw materials, operating labor, production supervision, utihties, suppHes, repair, and maintenance. Typical indirect costs include payroll overhead, quaHty control, storage, royalties, and plant overhead, eg, safety, protection, personnel, services, yard, waste, environmental control, and other plant categories. However, environmental control costs are frequendy set up as a separate account and calculated direcdy. The principal distribution costs are packaging and shipping. Fixed costs, which are insensitive to production level, include depreciation, property taxes, rents, insurance, and, in some cases, interest expense. 

Miscellaneous Direct Costs Estimates for the cost of maintenance and repairs, operating supplies, royalties, and patents are best based on company records for similar processes. A rough average value for the annual cost of maintenance is 6 percent of the capital cost of the plant. This percentage can vaiy from 2 to 10 percent, depending on the severity of plant operation. Approximately half of the maintenance costs are for materials and half for labor. Royalty and patents costs are in the order of 1 to 5 percent of the sales price of the product. 

Fixed costs 5. Maintenance 6. Operating labour 7. Laboratory costs 8. Supervision 9. Plant overheads 10. Capital charges 11. Insurance 12. Local taxes 13. Royalties 5-10 per cent of fixed capital from manning estimates 20- 23 per cent of 6 20 per cent of item (6) 50 per cent of item (6) 10 per cent of the fixed capital 1 per cent of the fixed capital 2 per cent of the fixed capital 1 per cent of the fixed capital... 

Well, she s only agreed in principle, but I m sure it s all right. No advance, of course, and he couldn t commit himself to details, said he wasn t allowed to do back-of-an-envelope costings, these days. But it ll be a handsome affair, they always do a good job, especially for what they d consider one of their own. Nothing less than the best for William Pryor and the Solmani Press. And the royalties split between Izzy and the Chantry Trust. That s symbolic, more than anything. I don t suppose it ll be serious money. ... 

Royalties are the costs paid to the owners of patents for using their inventions or processes. These are agreed upon in advance and usually amount to around 5/ 1,000 lb (500 kg) of product produced. There are also lump-sum royalties, where for a stated amount, which is paid only once, all rights to use the invention or process are given to the leasee. 

The classical royalty model has long been the norm, and is still well accepted for the manufacture of fine chemicals or commodities where the production costs are a very significant part of the final price of the product. However, our experience is that this model is not well accepted in the Life Science Industry and often presents a real hurdle for the application of proprietary technology for the production of new chemical entities. The all-inclusive model takes care of these concerns, and allows the customer to compare competing solutions on the basis of actual costs as well as of their potential for improvement. The same is true for volume-independent payments, and for both methods all process improvements totally benefit the customer s bottom line and are not reduced by increasing royalty fees. 

Some of the materials and techniques used in molecular biology may attract royalties if used for commercial purposes. Vectors, host strains and off-the-shelf DNA manipulation methods are usually readily available for modest licence fees for research purposes, but additional licences would need to be sought (and fees paid) if these systems were used in a commercial process. Where commercial exploitation is planned, the researchers should be prepared to switch to royalty-free genetic systems and avoid the use of costly and potentially toxic materials, such as artificial inducers or substrates, as gene expression regulators. 

Definitive diagnosis comes at a cost. QA/QC expenses, regulatory expenses, and patent royalty expenses are high, as are supply costs for consumables, reagents, and test kits. Morever, the equipment required for assay and result delivery and accuracy can be expensive. In the sections that follow, an outline of how these costs are calculated is provided and an effort is made to flesh out a difficult area to quantify. Generally, test costs, neglecting administration and overhead, can be... 

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