The Distortionary Effect of Petroleum Production Sharing Contract: A Theoretical Assessment

Fazel M. Farimani; Xiaoyi Mu; Ali  Taherifard

doi:10.1007/978-3-319-42902-1_75

The Distortionary Effect of Petroleum Production Sharing Contract: A Theoretical Assessment

Fazel M. Farimani (Lead / Corresponding author), Xiaoyi Mu, Ali Taherifard

Research output: Chapter in Book/Report/Conference proceeding › Conference contribution

Abstract

The distortionary effect of upstream petroleum taxation has been discussed extensively by economists. The literature however, has largly neglected the Production Sharing Contract (PSC) which is widely used by the internationl petroleum industry. We examine how a PSC can distort the optimal time path of production from an oil reservoir. To do that, we use optimal control theory and solve the problem with Hamiltonian function. We show that, regardless of the contract parameters, a PSC always distort the time path of production unless the oil price changes at the rate of interest rate.

Original language	English
Title of host publication	Operations Research Proceedings 2015
Subtitle of host publication	Selected Papers of the International Conference of the German, Austrian and Swiss Operations Research Societies (GOR, ÖGOR, SVOR/ASRO), University of Vienna, Austria, September 1-4, 2015
Editors	Karl Franz Doerner, Ivana Ljubic, Georg Pflug, Gernot Tragler
Publisher	Springer International Publishing
Pages	555-561
Number of pages	6
ISBN (Electronic)	9783319429021
ISBN (Print)	9783319429014
DOIs	https://doi.org/10.1007/978-3-319-42902-1_75
Publication status	Published - 2017
Event	International Conference on Operations Research: Optimal Decisions and Big Data - University of Vienna, Vienna, Austria Duration: 1 Sept 2015 → 4 Sept 2015 https://or2015.univie.ac.at/home/

Conference

Conference	International Conference on Operations Research
Abbreviated title	OR 2015
Country/Territory	Austria
City	Vienna
Period	1/09/15 → 4/09/15
Internet address	https://or2015.univie.ac.at/home/

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10.1007/978-3-319-42902-1_75

Mu, Xiaoyi
- Energy Environment and Society - Professor of Energy Economics
Person: Academic

Cite this

Farimani, F. M., Mu, X., & Taherifard, A. (2017). The Distortionary Effect of Petroleum Production Sharing Contract: A Theoretical Assessment. In K. F. Doerner, I. Ljubic, G. Pflug, & G. Tragler (Eds.), Operations Research Proceedings 2015: Selected Papers of the International Conference of the German, Austrian and Swiss Operations Research Societies (GOR, ÖGOR, SVOR/ASRO), University of Vienna, Austria, September 1-4, 2015 (pp. 555-561). Springer International Publishing. https://doi.org/10.1007/978-3-319-42902-1_75

Farimani, Fazel M. ; Mu, Xiaoyi ; Taherifard, Ali . / The Distortionary Effect of Petroleum Production Sharing Contract : A Theoretical Assessment. Operations Research Proceedings 2015: Selected Papers of the International Conference of the German, Austrian and Swiss Operations Research Societies (GOR, ÖGOR, SVOR/ASRO), University of Vienna, Austria, September 1-4, 2015. editor / Karl Franz Doerner ; Ivana Ljubic ; Georg Pflug ; Gernot Tragler. Springer International Publishing, 2017. pp. 555-561

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abstract = "The distortionary effect of upstream petroleum taxation has been discussed extensively by economists. The literature however, has largly neglected the Production Sharing Contract (PSC) which is widely used by the internationl petroleum industry. We examine how a PSC can distort the optimal time path of production from an oil reservoir. To do that, we use optimal control theory and solve the problem with Hamiltonian function. We show that, regardless of the contract parameters, a PSC always distort the time path of production unless the oil price changes at the rate of interest rate.",

author = "Farimani, {Fazel M.} and Xiaoyi Mu and Ali Taherifard",

note = "{\textcopyright} Springer International Publishing Switzerland 2017.; International Conference on Operations Research : Optimal Decisions and Big Data, OR 2015 ; Conference date: 01-09-2015 Through 04-09-2015",

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Farimani, FM, Mu, X & Taherifard, A 2017, The Distortionary Effect of Petroleum Production Sharing Contract: A Theoretical Assessment. in KF Doerner, I Ljubic, G Pflug & G Tragler (eds), Operations Research Proceedings 2015: Selected Papers of the International Conference of the German, Austrian and Swiss Operations Research Societies (GOR, ÖGOR, SVOR/ASRO), University of Vienna, Austria, September 1-4, 2015. Springer International Publishing, pp. 555-561, International Conference on Operations Research, Vienna, Austria, 1/09/15. https://doi.org/10.1007/978-3-319-42902-1_75

The Distortionary Effect of Petroleum Production Sharing Contract: A Theoretical Assessment. / Farimani, Fazel M. (Lead / Corresponding author); Mu, Xiaoyi; Taherifard, Ali .
Operations Research Proceedings 2015: Selected Papers of the International Conference of the German, Austrian and Swiss Operations Research Societies (GOR, ÖGOR, SVOR/ASRO), University of Vienna, Austria, September 1-4, 2015. ed. / Karl Franz Doerner; Ivana Ljubic; Georg Pflug; Gernot Tragler. Springer International Publishing, 2017. p. 555-561.

Research output: Chapter in Book/Report/Conference proceeding › Conference contribution

TY - GEN

T1 - The Distortionary Effect of Petroleum Production Sharing Contract

T2 - International Conference on Operations Research

AU - Farimani, Fazel M.

AU - Mu, Xiaoyi

AU - Taherifard, Ali

PY - 2017

Y1 - 2017

N2 - The distortionary effect of upstream petroleum taxation has been discussed extensively by economists. The literature however, has largly neglected the Production Sharing Contract (PSC) which is widely used by the internationl petroleum industry. We examine how a PSC can distort the optimal time path of production from an oil reservoir. To do that, we use optimal control theory and solve the problem with Hamiltonian function. We show that, regardless of the contract parameters, a PSC always distort the time path of production unless the oil price changes at the rate of interest rate.

AB - The distortionary effect of upstream petroleum taxation has been discussed extensively by economists. The literature however, has largly neglected the Production Sharing Contract (PSC) which is widely used by the internationl petroleum industry. We examine how a PSC can distort the optimal time path of production from an oil reservoir. To do that, we use optimal control theory and solve the problem with Hamiltonian function. We show that, regardless of the contract parameters, a PSC always distort the time path of production unless the oil price changes at the rate of interest rate.

U2 - 10.1007/978-3-319-42902-1_75

DO - 10.1007/978-3-319-42902-1_75

M3 - Conference contribution

SN - 9783319429014

SP - 555

EP - 561

BT - Operations Research Proceedings 2015

A2 - Doerner, Karl Franz

A2 - Ljubic, Ivana

A2 - Pflug, Georg

A2 - Tragler, Gernot

PB - Springer International Publishing

Y2 - 1 September 2015 through 4 September 2015

ER -

Farimani FM, Mu X, Taherifard A. The Distortionary Effect of Petroleum Production Sharing Contract: A Theoretical Assessment. In Doerner KF, Ljubic I, Pflug G, Tragler G, editors, Operations Research Proceedings 2015: Selected Papers of the International Conference of the German, Austrian and Swiss Operations Research Societies (GOR, ÖGOR, SVOR/ASRO), University of Vienna, Austria, September 1-4, 2015. Springer International Publishing. 2017. p. 555-561 Epub 2017 Mar 8. doi: 10.1007/978-3-319-42902-1_75

The Distortionary Effect of Petroleum Production Sharing Contract: A Theoretical Assessment

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