A theoretical evaluation of the resource rent tax for offshore oil and gas leases

Thesis/Dissertation · Wed Jan 01 04:00:00 EST 1992

OSTI ID:7022845

Ramoo, R T

This dissertation evaluates the economic and operational effects of a proposed tax instrument, the resource rent tax, for offshore oil and gas leases. The standard against which the scheme is measured is the system of competitive cash bidding used to award leases to federal tracts in the United States. The resource rent tax is an ex post fiscal device leved on the investor's net cash flow after a specified threshold rate is employed to compound forward the investor's net cast flow until a positive cumulative figure is reached. The goal of the study is to see if the resource rent tax functions in a way that improves on the unregulated market. Two types of issues are investigated: (1) questions relating to the efficiency of the system; and (2) those relating to its efficacy. Efficiency issues study the propensity for distortions in the form of transmitting incentives not consistent with the objective of maximizing net present value of the resource. The principal economic objectives of concern here are: maximizing the present value of government revenue and minimizing fiscal risk or uncertainty borne by the government. The resource rent tax is evaluated on the following criteria: its capacity to raise revenue, the resulting time path of government revenue, and the clarity and cost of administration. The conclusions of the study are threefold. First, cash bonus bidding enables the government to recover most of the value of offshore oil and gas resources without imposing an onerous regulatory burden. Second, unless the selected resource rent royalty rate and the threshold rate are such that the resulting resource value mimics the competitive outcome, investment decisions will be distorted and incentives exist for wasteful expenditure. Third, the potential perverse incentive effects of the resource rent tax reduce the value of the lease and lead to lower government revenue.

• Research Organization: California Univ., Santa Barbara, CA (United States)
• OSTI ID: 7022845
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING, POLICY, AND ECONOMY
290201* -- Energy Planning & Policy-- Economics-- (1992-)
294000 -- Energy Planning & Policy-- Fossil Fuels
CONTRACTS
ECONOMIC ANALYSIS
ECONOMICS
ENERGY SOURCES
FINANCIAL INCENTIVES
FLUIDS
FOSSIL FUELS
FUEL GAS
FUELS
GAS FUELS
GASES
GOVERNMENT POLICIES
LEASES
MANAGEMENT
NATURAL GAS
OFFSHORE SITES
PETROLEUM
PROPERTY MANAGEMENT
RESOURCE MANAGEMENT
TAXES