How to Capture the Windfall Profits from High Oil Prices—How Should Oil-rich Governments Share the Revenue With E&P Companies Over the Production Period

Abstract

Oil prices directly affect how much gross revenue is available when a petroleum reservoir is produced. When the oil price is low there is little of it available, but when the oil price rises the gross revenue can be very significant. How should this gross revenue be distributed, so that both the host country (its government and its citizens) and the oil production company feel that their take is fair? This question becomes more important when there is perceived to be a windfall which is the excess money over a baseline as a result of a higher than expected oil price. It is the norm for oil-rich governments to always want to maximize their assets for the benefit of their citizens. On the other hand, investment is continually needed by companies to ensure that the reservoir and production infrastructure is able to continue production to maximum recovery. But do governments always appreciate the long-term? This article discusses how the windfall profits might be distributed.

Keywords:

• government take
• inland revenue
• oil price
• taxation
• windfall profits

Notes

¹ http://cerasius.com/wikki/Dutcvh_disease