Alexander G. Kemp

A REGIONAL MODEL OF OIL AND GAS EXPLORATION IN THE UKCS

Existing exploration–discovery models are generally characterised by equations describing the behaviour of exploration, success rates, and discoveries. The present paper adds two equations describing the behaviour of finding costs and exploration efficiency. The model was disaggregated along regional lines. Applying the model to UK Continental Shelf data over the period 1964–2002 produced results that supported the new approach. Analysis of the model dynamics and simulation forecast reveals similarities, but also important differences in the responsiveness of activity in the regions to policy multipliers, implying that uniform policy instruments will produce unequal responses in areas with different levels of maturity.

Investment in Oil Exploration and Production: The Comparative Influence of Taxation

Over the last decade governments have given increasing attention to the taxation of petroleum production. The large increases in crude oil prices in 1973–4 and later in 1979–80 focused their attention on the large profits that could be made from this activity. Rates of taxation have now reached extremely high levels. In several countries oil companies have complained that the burden has become excessive and is impairing exploration and development. The economic rents emanating from oil extraction are widely regarded as a suitable base for taxation but there is a danger that over-zealous governments will impose burdens that exceed these rents and thus cause disincentives and distortions. The dangers of this occurring are increased under most conventional systems of taxation which are not specially designed to capture economic rents. Under conventional systems of taxation when marginal rates reach very high levels the dangers of such distortions and anomalies are further increased.

An assessment of UK North Sea oil and gas policies Twenty-five years on

Abstract North Sea oil and gas exploitation has had a major impact on the UK economy. To maximize the potential national benefits appropriate licensing, taxation, depletion and pricing policies are required. Given the high degree of geological uncertainty in the early years some use of the discretionary licensing system to award acreage was appropriate, but greater use could have been made of auctions as the province matured. The taxation arrangements have certainty collected a high share of the economic rents to the state. The cost has been a very complex and frequently changed system. Depletion rates have been very fast and largely market-driven. Restrictive depletion policies would have imposed high costs. Emphasis should be placed on policies to ensure that appropriate investment of oil revenues takes place rather than restrict output. The monopsonist position of British Gas distorted the pattern of gas exploitation in the 1970s. While competition is still restricted within the current framework, the industrial market will become much freer.

Price, cost and exploration sensitivities of prospective activity levels in the UKCS: an application of the Monte Carlo technique

Abstract Building on previous work this paper develops a probabilistic economic model using the Monte Carlo technique to project activity levels in the UK Continental Shelf. The modelling emphasises the importance of oil and gas prices, the investors hurdle rate of return, changing prospectivity, and the exploration effort. Activity in the medium term is found to be highly sensitive to oil and gas prices, development costs and exploration effort. Field investment may fall very substantially and the oil production decline rate could be fast from 2000. To sustain higher activity levels further technological advances and their widespread adoption are essential.

Petroleum policy issues in developing countries

Abstract Petroleum is of vital importance to most developing countries either in their capacity as producers or consumers. On both counts they are heavily exposed to the impact of the large oil price fluctuations which have characterized the last 20 years and are likely to be prevalent in the foreseeable future. To optimize their benefits in government take and investment producing countries should place emphasis on profit-related fiscal instruments. Consuming countries should ensure that oil prices reflect their opportunity costs. The design of consumption taxes on petroleum products should take into account: a) their revenue-raising potential; b) their distributional effects; c) the need to correct for externalities in the use of petroleum; and, d) the energy security/price vulnerability aspects.

Risk:reward sharing contracts in the oil industry: the effects of bonus:penalty schemes

Abstract Partnering and alliancing among oil companies and their contractors have become common in the oil industry in recent years. The risk: reward mechanisms established very often incorporate bonus/penalty schemes in relation to agreed base values. This paper examines the efficiency requirements of such schemes. The effects of project cost and completion risks on the risk: reward positions of field investors and contractors with and without bonus/penalty schemes are examined with the aid of Monte Carlo simulation analysis. The schemes increase the total risk for contractors and have consequence for their cost of capital and optimal risk-bearing arrangements within the industry.

Effects of changes in UK North Sea oil taxation

Abstract Changes in North Sea oil tax structure were introduced by the UK government in mid-1979. The new system is aimed at increasing revenues to the state without damage to exploitation and production. This paper considers the effects which the new tax regime, and each of its components, will have on different types of field being exploited under various circumstances. The analysis also considers sensitivity to capital cost inflation, effects on multi-field operation and the results of two other possible tax schemes. It is found that the new tax scheme will considerably alter the structure of the tax burden and will increase the overall tax take. Marginal tax rates will also increase, not least for some fields with low expected returns. The new scheme will, however, continue to favour capital intensive exploitation techniques.

The benefits of North Sea oil

Abstract The extent to which North Sea oil has brought benefits to the UK depends both on its direct and indirect effects. In this paper, some measures of the direct benefits are discussed. Recent falls in oil prices and revised expectations regarding their behaviour in the medium term have significantly decreased the present value of these benefits, compared to the position seen only two years ago. The indirect effects of oil revenues are interdependent with issues of general economic policy. The degree to which the economy can benefit depends upon the extent to which the performance of the British economy is susceptible to improvement via government policy. North Sea revenues provide an opportunity for improvement but the extent to which this is realized depends on the reaction of the non-oil economy.

Forecasting activity levels in the UK continental shelf: the role of perceptions

The explicit treatment of the role of perceptions in modelling forecasts is uncommon. With respect to future activity levels in the UK Continental Shelf, using the flexibility of add factors in econometric forecasts, this article demonstrates that, in addition to price variations, forecasts are sensitive to perceptions about future resource discovery and recovery rates. A medium-sized multivariate system reflecting the feedback structure of the petroleum supply process was formulated, estimated, and used to forecast activity levels.

Development and production prospects for UK oil and gas post-Gulf crisis: A financial simulation

The operating environment within which North Sea oil and gas exploitation is taking place is both uncertain and subject to continuous change. Some of the major influences, such as oil price movements, are exogenous, being determined essentially by factors outwith the province. Others, such as the implementation of the recommendations of the Cullen Report1 on safety issues, have arisen from factors within the province. In an extractive industry with production subject both to natural and inevitable depletion, and to repletion through the development of new discoveries, there is an inherent dynamic whose overall consequences are not immediately obvious.