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Modeling the response to exogenous shocks: The capital uplift rate in petroleum taxation

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  • Berg, Magnus
  • Bøhren, Øyvind
  • Vassnes, Erik

Abstract

We show how a recent drop in the Norwegian capital uplift rate by two percentage points changes optimal field design and reduces field value for shareholders. Although optimal design changes considerably and value drops by 12%, the ability to reoptimize design after the shock is worth only 1.5% of field value. This evidence suggests that large behavioral effects of a shock do not necessarily imply large value effects, making it less important to always account for the taxpayers' response. The valuation error in such cases may be moderate if one instead uses the simplifying and widespread assumption of unresponsive taxpayers.

Suggested Citation

  • Berg, Magnus & Bøhren, Øyvind & Vassnes, Erik, 2018. "Modeling the response to exogenous shocks: The capital uplift rate in petroleum taxation," Energy Economics, Elsevier, vol. 69(C), pages 442-455.
    • Handle: RePEc:eee:eneeco:v:69:y:2018:i:c:p:442-455
    DOI: 10.1016/j.eneco.2017.12.010
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    2. Lindholt, Lars, 2021. "Effects of higher required rates of return on the tax take in an oil province," Energy Economics, Elsevier, vol. 98(C).
    3. Lars Lindholt, 2019. "Effects of higher required rates of return on the tax take in an oil province," Discussion Papers 892, Statistics Norway, Research Department.
    4. Hiorth, Aksel & Osmundsen, Petter, 2020. "Petroleum taxation. The effect on recovery rates," Energy Economics, Elsevier, vol. 87(C).
    5. Eichhorn Colombo, Konrad W., 2023. "Financial resilience analysis of floating production, storage and offloading plant operated in Norwegian Arctic region: Case study using inter-/transdisciplinary system dynamics modeling and simulatio," Energy, Elsevier, vol. 268(C).

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    More about this item

    Keywords

    Endogeneity; Responsive; Unresponsive; Tax shock; Exogenous; Petroleum taxation; Uplift;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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