Note:  American University in the Emirates, P.O. Box 503,000 Dubai, United Arab Emirates; Email: Dr_hossein_kashani@yahoo.com
Abstract: The study is the first empirical work taking on the issue of the possible effects of price and the taxation system on the cost efficiency of oil companies. Applying data envelopment analysis in the first stage, we measure the relative efficiency of all oil and gas fields brought on stream since the production started in the Norwegian Continental Shelf (NCS) in the late 1960s. In the second stage, the efficiency scores are regressed against the annual oil price as well as annual royalty, special tax, and corporate tax paid by each field. The results show high inverse (negative) relation between oil price and cost efficiency of the fields suggesting a possible induction of gold plating. The taxation system, as a whole, seems to be non-neutral: the Norwegian Special Petroleum tax has significant inverse relation with cost efficiency of the oil companies, while the corporate tax seems to induce cost efficiency. The effect of royalty is insignificant. The results could interest the policy-makers when levying various taxes on the industry and induce more consciousness about the cost efficiency amongst the decision-makers in the oil companies.
Keywords: Optimal Taxation, Efficiency, Petroleum, Data Envelopment Analysis, North Sea