A new forecast from the International Energy Agency shows North Sea oil production will peak at about 7 million b/d in 1999, with the U.K. contributing 3.2 million b/d and Norway most of the rest.
Thus Norway and U.K. are expected to produce at a higher rate and longer than earlier estimates. While Norwegians are expected to benefit from this boom through high taxes on oil and gas production, there is evidence that British will not.
Two researchers at the U.K.'s University of Sheffield are concerned that Britain's government's approach is not in the national interest.
Ian Rutledge and Philip Wright first presented their views at a conference last December and have included it in a book, "U.K. Energy Experience: A Model or a Warning?", to be published by Imperial College Press, London, in March.
Rutledge and Wright said, "Britain has once again entered upon a major hydrocarbon boom, which looks set to exceed that of the mid-80s. However, as hydrocarbon production has been increasing, tax revenues have been falling. Between 1984 and 1994 production increased by 17%, but tax revenues fell by 87%."
Weak regime
Much of the slide in government income stems from the way the U.K. government has relaxed its fiscal regime in favor of North Sea producers.
From 1983 to 1993, government reduced corporation tax payable by producers to 33% from 52% and petroleum revenue tax to 50% from 75% on fields then in production and to zero for fields later placed on stream.
Rutledge and Wright claim that government's share of U.K. North Sea profits fell to 16.5% in 1994-95 from 58.6% in 1986-87.
The authors said, "Britain now has the weakest petroleum tax regime in the world, after taking into consideration its good prospectivity and infrastructure.
"The rapid depletion of Britain's hydrocarbons reserves during the first oil boom may have been justifiable during the period of high oil prices which lasted until 1986.
"The same cannot be said for the present high rate of depletion. Very low taxation is encouraging overproduction and thereby contributing to a vicious circle of low oil prices and further reductions in tax revenues."
U.K. "unstable"
The authors said that in most countries there is an inverse relationship between the country's tax rates and its prospectivity and availability of good production and export infrastructure.
Ireland offers the world's lowest tax rate, at 25%, but prospectivity is reckoned to be low and future developments marginal.
The U.K. is the world's second lowest tax taker at 33%, yet prospectivity is said to be relatively good and viable fields may still be found.
"It is clear that the U.K. currently has the weakest petroleum taxation regime in the world," Rutledge and Wright said. "It is also clear from the huge difference between the internal rate of return and discount rate for both economic fields and potential 'upside' fields that government is currently contemplating with complete equanimity the possibility of handing over the whole of the economic rent from such fields to private-often foreign-companies."
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