The economics of North Sea oil taxation

• Main Author: Rowland, Chris
• Published: University of Surrey 1983
• Subjects: 553.282; Oil
• Online Access: https://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.345466

In this thesis the taxation of North Sea oil is found to deter oilfield investment substantiaty - investment which it pursued would bring about Pareto benefits. Analysis of both the comparative static tax effects and the dynamics of taxation on oilfield development decisions reveals the nature of the deterrent, while a specially developed econometric model is used to quantify the impact of the tax structure and of tax changes on recoverable reserves. By detailing the mechanisms through which taxation distorts the allocation of investment resources away from North Sea developments, the thesis stresses that individual tax clauses tend not to perform the roles allotted to them and that tax changes alter the economics of oil projects in ways and in magnitudes that do not seem to be realised. Hence, not only is the nature of these effects misunderstood, but the extent oi these effects is much more damaging than commonly appreciated. These findings are reached by following the principles laid out in the early chapters which suggest that, if an improvement in the allocation of resources is to occur, laise beliets must be reclined. In particular, the inconsistencies between the targets and instruments of North Sea policy suggest there are false beliets about the need to stimulate development decisions and about the role of taxation - suggestions which are confirmed in the detailed research of the thesis. Having condemned existing North Sea oil tax policy, a practical, feasible and attainable alternative to the current tax system, that would not distort investment decisions so severely, is recommended.