Comparative Study of the Efficiency of Petroleum Rent Collection in Norway and Nigeria

Petroleum rent collection has been an on-going area of interest to Petroleum Economists, investors, and exhaustible resource owners (governments) and the question of what an efficient rent collection design or system should be is also an ongoing issue in the oil industry. This latter question is the thrust of this study. The analytical work embodied in this study is a comparative study of efficient petroleum rent collection in Norway and Nigeria. The concept of efficiency was viewed from the government’s perspective.The methodology was basically a model of oil fields done with the aid of a spreadsheet which allows elements of both Norwegian and Nigerian tax regimes to be incorporated and applied on the cash flow of the model oil fields in order to determine the returns in terms of Pre and Post-tax NPV as well as tax take in Money-of –the Day (MOD) and Real Terms at 10% discount rate. Equations and assumptions underlying the model were clearly set out. The study revealed that for petroleum rent collection to be efficient a number of factors or parameters must come to interact before the rent collection design can be said to be efficient or not. Some of these parameters include oil price, development costs, discount rate, custodians to the design (relevant institutions) among others, and the rent collection design which is the tax regime itself. Interestingly from the study, the Norwegian tax regime exhibited efficiency consistently throughout the study at various price scenarios and development costs at 10% discount rate over and above the Nigerian tax regime (licensing). It was suspected that this could in part be the reason for the popularity of an alternative regime in operation in Nigeria known as Production Sharing Contract (PSC). It runs side by side with the licensing option which was chosen for this study as it is similar or alike with the Norwegian regime. The thought of comparing like with like was quite appealing as it lends validity to the work and therefore was the rationale for choosing the licensing option. The PSC leaves room for further research