Oil and Gas Collection II Oil and Gas Law, Contracts Law, Energy Dependency, Petroleum Energy Market, Energy Policies and Legislation, Licesingh Regimes,Production Sharing Agreements, Oil Pollution by Johnathan Borg

Author:Johnathan Borg [Borg, Johnathan]
Language: eng
Format: azw3
Published: 2017-02-28T05:00:00+00:00

UKCS Fiscal Regime from 1975 to Present

Over the span of operating in the Oil and Gas industry, the UK Government has employed the concession type of agreements. Both the issued license and concession agreement grant contractors with exclusive rights for exploration, production and development activity within a designated area. The main distinctive features of concession agreements are ownership of produced oil and contribution of specific revenue to the Host Government.[626]

In the UK under concession agreements, the contractor does not possess mineral rights, but is only entitled to extracted products from designated area. As an illustrative example, rights to catch fish do not grant the holder of those rights ownership of all fish in a particular river or lake. Therefore under concessionary agreements, investors possess rights on extracted minerals, but not for minerals in situ.[627] The UK concession system has its own uniqueness and was adjusted to suit the UK fiscal regime; therefore it differs from the classic concession model which was established in the early 20th century.

Very often, it’s named “North Sea Model” concession type which grants IOC with rights for exploration, production and development activities. In return, IOCs became subject to royalty payments in addition to corporate and other special taxes.[628] As was succinctly summarised by Noreng, “Its accommodates private interests under public control”. [629]

There are varying opinions on the UKCS fiscal regime. Some consider it very weak, accusing it of being overly regulated and too often in a state of flux, undesirable because of the financial risks and uncertainty it creates for investors, in terms of being to overly regulated and having tendency to change too often, causing high financial risks and uncertainty for investors. However, others are of the opinion that it is well-adjusted to the maturity of the North Sea.[630]

In this section, the evolution of the UKCS fiscal regime will be discussed over the span of almost 40 years. The main phases of the taxation regime will be discussed, starting from 1975 when the Oil and Gas taxation regime was established, to present days. The following specific phases will be critically analysed: tightening of the tax system 1978 – 1982, several stages of abolition of royalties, abolition of Petroleum Revenue Tax, application of a 10 percent supplementary charge in 2002 and its following rise in 2005 and 2011 up to 20% and 32% accordingly.

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