Modeling the Impact of Taxes on Petroleum Exploration and Development

Abstract

We present a simple model of petroleum exploration and development that can be applied to study the performance of alternative tax systems and identify potential distortions. Although the model is a highly simplified, it incorporates many factors and some of the key tradeoffs that would influence an investor's investment behavior. The model recognizes the role of enhanced oil recovery and treats the impact of taxation on exploration and development in an integrated manner consistent with an investor's joint optimization of investments at both stages of the process. The model is simple and user-friendly, which facilitates application to a broad range of problems.

Keywords: Taxes, Oil production, Taxation, Economic models, petroleum exploration, oil production, taxation, distortions, fiscal regimes, fiscal regime, taxation, tax rates, marginal tax rates, tax distortions, tax liabilities, tax avoidance, tax instruments, fiscal impacts, fiscal design, tax system, tax policy, capital investment, form of taxation, petroleum taxation, corporate income tax, marginal tax rate, tax systems, tax revenues, government revenue, tax reform, fiscal systems, tax returns, income taxes, tax base, tax instrument, fiscal arrangements, fiscal designs, fiscal affairs, capital expenditures, fiscal costs, tax incentives, fiscal burden, tax accounting, taxable income, tax journal, opt

JEL Classification: H21, H25, L71, L72, Q32, Q38