Offshore Energies Magazine - Issue 55 Spring 2023

It is widely acknowledged that capital rationing currently exists, not only because of the effects of the EPL but also because of the willingness of lenders to provide funds for oil development purposes. In this situation investors can assess projects by estimating the ratios of post-tax net present values over project investment costs. When we undertook these calculations we found that on small fields the ratio was extremely low and well below that likely to be acceptable in a capital rationing environment. As noted above the incentive effects of the EPL are to plan investments to take advantage of the various investment reliefs and liabilities. Because decommissioning expenditure is not a deductible item for the EPL, there are incentives to delay decommissioning work.

The full paper can be found at: acreef/north-sea-p aper-series-562.php Professor Alex Kemp, Arturo Regalado Aberdeen Centre for Research in Energy Economics and Finance (ACREEF), Business School, University of Aberdeen

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