Petroleum licensing system

The petroleum fiscal regime of a country is a set of laws, regulations and agreements which governs the economical benefits derived from petroleum exploration and production. The regime regulates transactions between the political entity and the legal entities involved. A commercial or legal entity in this context is commonly an oil company, and two or more companies may establish partnerships to share economic risks and investment capital.

Although petroleum, oil and gas, and hydrocarbons are not technically mineral resources, the term mineral rights is used to denote rights to exploit oil and gas resources from the underground. Onshore, in United States, the landowner possesses exclusive rights for mineral rights, elsewhere generally the state does. For this reason, the fiscal regime of US is divergent from that of other countries. The petroleum licensing system of a country may be considered interwoven with the fiscal regime, however, a licensing system has its distinct function: to grant rights for petroleum exploration and production to commercial entities.

Because each country has distinctive legislation, there are theoretically just as many different fiscal regimes as there are countries in the world with petroleum resources, but the regimes can still be categorized based on their common characteristics.

Motivation for introducing special taxes on petroleum production is rooted in rent theory and the assumption that oil and gas resources provide an extraordinary rate of resource rent (economic rent). The term "resource rent" expresses the difference between the values of hydrocarbons extracted from a deposit and the total costs of exploring and producing the hydrocarbons, synonymous with excess profit. Resource rents will be distributed among the state and the oil companies engaged in extracting hydrocarbons in a license. The rents must recover costs undertaken by the companies, give some company profit and give income for the state (in US the landowner) to compensate for the takeout of natural resources. Income tax and special petroleum tax to the state may also apply and carried by the resource rents.

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