Economic Report 1999 Index

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The Burden of Taxation on Mature Fields Mature oil and gas fields suffer from two fiscal disadvantages. Firstly, the aggregate rate of tax, taking into account Royalty, Petroleum Revenue Tax and Corporation Tax, is over 69% which is high by international standards. Secondly, drilling costs are not deductible for Royalty. This penalises the additional drilling activity which is essential to maximising oil and gas recovery. Mature fields are disadvantaged by this high burden of taxation and incremental projects are discouraged. This has the effect of reducing the life expectancy of the fields, which causes premature cessation of production and decommissioning. Once such fields are closed down, the possibility of producing small satellite reservoirs disappears for ever. In addition, the infrastructure is no longer available for transportation of hydrocarbons from other areas. Competition among owners of pipelines and other infrastructure should be open and equal in order to encourage the most efficient use of capital invested. Owners of infrastructure, which is linked to mature fields for tax purposes, pay much higher taxes on tariff income than would owners of newer infrastructure.