Onshore Economics

Abstract

One of the most persistent themes running through the story of onshore oil and gas exploration and production in Britain is the way in which levels of activity are determined by the perceived economics of success and failure. At various times attention has been drawn to the fact that in certain circumstances there are compelling non-economic reasons, especially for larger companies, for finding and pumping oil from British soil. These include security of supply, the benefits to be derived from providing operatives with work experience on small-scale, local projects, and, perhaps in the early days, prestige played a part. But most private enterprise activity has been prompted by a more or less rigorous examination of the costs involves and the potential rewards to be gained. An instinct for the geological gamble is needed, but many of the calculations will be financial. Indeed, one observer has gone so far as to suggest, ‘The business is as much about raising money as knowing where to find oil.’ ¹ A number of factors are involved, some of them within the control of central and local government, and all of them varying in importance from company to company. The three most crucial are the costs of drilling and producing, the price that may be obtained for the oil and gas produced, and the prevailing tax regime, which will determine in simple terms how much a producer will retain of the difference between costs and revenue, that is his profit.