Scandinavian Working Papers in Economics

UiS Working Papers in Economics and Finance,
University of Stavanger

No 2017/5: Petroleum tax competition subject to capital rationing

Petter Osmundsen (), Kjell Lovas and Magne Emhjellen
Additional contact information
Petter Osmundsen: UiS, Postal: University of Stavanger, NO-4036 Stavanger, Norway

Abstract: The recent dramatic fall in oil prices has led to extensive capital rationing in international oil companies, and subsequent fierce competition between resource extraction countries to attract scarce investment. This situation is not adequately addressed by the large literature on international taxation and multinational companies, since it fails to take account of capital rationing in its assumption that companies sanction all projects with a positive net present value. The paper examines the effect of tax design on international capital allocation when companies ration capital. We analyse capital allocation and government take for four equal oil projects in three different fiscal regimes: the US GoM, UK upstream and Norway offshore. Implications for optimal tax design are discussed.

Keywords: Taxation; international companies; project metrics; project valuation; oil projects

JEL-codes: F23; G12; G31; H21; H25

30 pages, March 30, 2017

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