Effects of changes in UK North Sea oil taxation

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.