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|Title:||Tax Accounting Method and Offshore Petroleum Development: A Policy Evaluation Model Employing Royalty Equivalents and Excise Taxes (Oil and Gas, Capital Budgeting, Simulation, Capitalization, Net Present Value)|
|Author(s):||Boynton, Charles Edward|
|Department / Program:||Accountancy|
|Degree Granting Institution:||University of Illinois at Urbana-Champaign|
|Subject(s):||Business Administration, Accounting|
|Abstract:||The general goal of this research was to develop a methodology by which a government might choose a tax accounting method that would maximize the net present value of government revenues from a class of projects. The industry selected was offshore petroleum. The impact of tax accounting methods on reserves was also determined. The research employed a capital budgeting simulation model of a natural gas reservoir. The research did not consider uncertainty or capital rationing. The key financial variables were: tax accounting method, discount rates, expected price and costs, royalty rates, tax rates, tax credits, and expected bid. The reservoir model simulated the capacity optimization decision of the firm, that is, the decision as to the number of wells (initial capacity) with which to develop the reservoir. The basin model employed linear interpolation of the reservoir model data. It specifically dealt with the problem of minimum economic size (MES) and the resulting truncation of discovery frequencies of reservoirs.
There are five specific contributions of the research. First, The research highlighted the significant impact of the firm discount rate on government net present values. Second, the research suggests that real choices may exist for the government in specifying a tax accounting method as part of an overall tax package. Capitalization methods may interact with firm discount rate with a negative impact on total government revenue. A government may be better off by granting immediate expensing under its income tax and imposing an additional sales or excise tax. Third, the research developed the concept of royalty equivalent to quantify the net present value of the transfer between firm and government in a manner that allows comparisons in the presence of different discount rates. Fourth, the research developed procedures for graphing royalty equivalents and for interpreting the graphs so that they might be easily used. Fifth, the research extended prior work on a financial reservoir model for tax research and developed a related basin financial model for tax research.
Thesis (Ph.D.)--University of Illinois at Urbana-Champaign, 1985.
|Date Available in IDEALS:||2014-12-16|