Petroleum Economic and Oil field management Essay

Petroleum Economic and Oil field management - Essay Example dvantageous to tax rent rather than profits because they yield more because they can be taxed to slightly less than 100 percent and cannot distort behavior providing an ideal non-distorting tax (Passant, 2011:3). The concessionary system was used as the very first system in the oil industry especially in mining operations in Greece in 480 B.C. In modern times, the use of this method allows oil companies to explore, develop, sell and export oil from a country for a specific time. Examples of countries using this method include Kuwait, Angola and Sudan. The contract-based system of taxation is those where there are two types of systems namely the production sharing contracts and risk service contracts. The contractor has no claim or title over the oil produced but undertakes exploration. The contractor is expected to pay the government in form of tax and non-tax revenues. An example of a country using this system is the UK (Agreement, 2004:4). For the Oceania government, it should adopt the contract-based system of taxation. This system allows the state to own the reserves. The government and oil companies negotiate on how long the company will have a right to extract on the oil reserves. Despite the fact that it could be many years, exploration cannot be beneficial until it is completed. This could go into losses especially for the company doing the exploration and could save the country from such losses. The most beneficial part for the government is that it has the right to draft and negotiate a contract system that can help it maximize on the revenue and limit a company’s access to oil while at the same time create a legal regime that will allow the state to modify the terms of the contract. Back-end loading system refers to a taxation system where fiscal measures are low in terms of compensating project and sovereign risk, recoups capital outlay in a short time, maximizes the long run post tax returns and has no windfall profit taxes when prices of goods