Gas exploration and production at the Dutch Continental Shelf; An assessment of the 'Depreciation at Will'

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Gas exploration and production at the Dutch Continental Shelf; An assessment of the 'Depreciation at Will'

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Machiel Mulder
Arie ten Cate
Ali Aouragh
Joeri Gorter

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Abstract

This report analyses the effects of Depreciation at Will (DAW) on offshore gas production, government budget and employment in the gas industry. The DAW enables firms to accelerate deprecation of investments in platforms and other offshore equipment. The interest advantage due to the postponed payments of taxes raises the profitability of investment projects and, hence, could raise the level of investments.

The key question in the debate on the DAW is whether the higher tax base compensates for the interest losses due to postponed tax receipts. The econometric analysis has shown that the DAW increased only the number of development drillings during the period this measure was implemented (1996-2002). A moving long-run average of the oil price has appeared to be a significantly explaining variable behind the level of exploration drillings as well as development drillings. Using the current value of that oil price, 25 dollar per barrel, we find a large number of profitable exploration projects.

In the current circumstances, introduction of the DAW will not raise the level of investments in the near future, as several non-financial factors appear to be bottlenecks, such as the duration of licensing procedures.

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Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Documents with number 66.

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Date of creation: Oct 2004
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Handle: RePEc:cpb:docmnt:66

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Find related papers by JEL classification:
Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General
Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply
Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

This paper has been announced in the following NEP Reports:

NEP-ACC-2004-11-07 (Accounting & Auditing)

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Machiel Mulder & Gijsbert Zwart, 2006. "Government involvement in liberalised gas markets: A welfare-economic analysis of the Dutch gas-depletion policy," CPB Documents 110, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]

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