Oil Gas Extractives

What this file is

A sector overlay for oil & gas, mining, and other extractives companies.

Section 1 — Fiscal regimes overview

[T1] Three main regime models (Section 1 — Fiscal regimes overview)

Regime	Mechanism	Examples
Concession / Royalty + Tax	Operator pays royalty + standard CIT (often ring-fenced)	UK (Brent, North Sea), Norway, US (federal + state royalty + CIT), Canada, Australia
Production Sharing Contract (PSC)	Operator recovers costs from "cost oil/gas"; "profit oil/gas" split with government per scale	Indonesia, Nigeria, Angola, Egypt, Algeria, Brazil pre-salt, Kazakhstan
Service / Risk Service	Operator paid fee per unit produced; government retains ownership	Mexico (pre-2014 reform), Iran (buyback), Iraq (technical services contract)

Section 2 — UK North Sea fiscal regime

2.1 The ring-fence

• UK ring-fence rule — UK upstream petroleum activities are "ring-fenced" — losses and profits from non-ring-fence trades cannot offset ring-fence profits. ([T1])

2.2 Three taxes

• Ring-Fence Corporation Tax (RFCT) — 30% (Finance Act 2002)
• Supplementary Charge (SC) — 10% additional tax (reduced from 32% in 2016, reinstated to 10% in 2024) ([T1])
• Energy Profits Levy (EPL) — 35% (rate increased to 38% from 1 November 2024 under Finance Act 2025 amendments; sunset extended to March 2030) (Energy Profits Levy Act 2022; Finance Act 2025)
• Total effective rate — 30% + 10% + 38% = 78% (post-November 2024) ([T1])
• Petroleum Revenue Tax (PRT) — frozen at 0% from 2016 for new fields ([T1])

2.3 Allowances

• Capital allowances — 100% first-year on most plant and machinery in ring-fence ([T1])
• Loss carryforward / carryback — intricate ([T1])
• EPL investment allowance — 44% (reduced from 80%) for qualifying ring-fence investment expenditure ([T1])

Section 3 — Norwegian Special Tax

• Standard CIT — 22% ([T1])
• Special petroleum tax (SPT) — 56% (effective rate) ([T1])
• Combined marginal rate — 78% ([T1])
• Cash-flow basis tax reform — Recently introduced cash-flow basis for tax reform: full first-year deduction of qualifying upstream investment (reformed 2022); SPT calculated on operating cash flow less qualified investment expense ([T1])

Section 4 — EU Solidarity Contribution

• Temporary solidarity contribution — Temporary solidarity contribution on fossil fuel sector "surplus profits" (Council Regulation (EU) 2022/1854)
• Surcharge rate — 33% surcharge on profits above 120% of 4-year average (Council Regulation (EU) 2022/1854 (October 2022))
• Member State implementation — Member States implemented as temporary windfall taxes for 2022 and 2023 ([T1])
• Extension and UK treatment — Most Member States extended through 2024-2025; UK has its own EPL outside EU framework ([T1])

Section 5 — US oil and gas

• Federal CIT — 21% ([T1])
• State CIT — variable ([T1])
• Severance taxes — state-level on extracted product (Texas oil severance 4.6%; Oklahoma 7%; ND 6.5%; WV 5%; etc.) ([T1])
• Royalty — federal lease 18.75% offshore / 12.5% onshore (raised from 12.5% to 16.67% in 2022 reform); state and private lease rates negotiated ([T1])
• IDC (Intangible Drilling Costs) — election to expense currently (§263(c)) (§263(c))
• Depletion allowance — percentage depletion for small producers (§613A) or cost depletion (§612) (§613A; §612)
• Successful Efforts vs Full Cost — financial accounting method choice (ASC 932) (ASC 932)

6.1 Major mining jurisdictions

Major mining jurisdictions (Section 6 — Mining sector)

Country	Royalty	CIT	Notable
Australia	Mineral Resources Rent Tax (MRRT) repealed 2014; state royalties (NSW, QLD, WA variable 2-10%)	30% CIT; full expensing of capital	Major iron ore, coal, gold
Canada	Provincial royalty + CIT 26.5% combined	Federal 15% + provincial	Major potash, oil sands
Chile	Mining royalty (2024 reform: ad-valorem + margin-based 1-2% + 10-32% on profits above thresholds)	25% CIT	World's largest copper
Peru	Mining royalty 1-12% by margin; Special Mining Tax 2-8.4% on operating margin; CIT 29.5%	29.5%	Major copper, gold, zinc
South Africa	Mining royalty 0.5-7% by refined vs unrefined	27% CIT (post-2024)	Major platinum, gold
Indonesia	Royalty 3-6% by mineral; PSC for oil/gas	22% CIT	Major coal, nickel

6.2 EITI (Extractive Industries Transparency Initiative)

• EITI reporting — 50+ implementing countries publish reconciled extractive payments and receipts. EU Accounting and Transparency Directives require listed extractive companies to publish payments to governments (Country-by-Country Reporting equivalent). ([T1])

7.1 Successful Efforts vs Full Cost

• Successful Efforts — only successful exploration costs capitalised; dry holes expensed. ([T1])
• Full Cost — all exploration and development costs capitalised in "cost pool" by country. ([T1])
• GAAP/IFRS treatment — US GAAP ASC 932 permits both. IFRS 6 (Exploration and Evaluation Assets) allows choice for E&E phase but development phase aligned to IAS 16 / IAS 38. (ASC 932; IFRS 6; IAS 16; IAS 38)

7.2 Asset Retirement Obligation (ARO) / Decommissioning

• ARO recognition — IAS 37 / ASC 410: provision for future decommissioning recognised at discounted PV of cost when constructive obligation arises (typically at first production). (IAS 37; ASC 410)
• Provision accounting treatment — Provision debited as asset addition; depleted with the reserve ([T1])
• Tax deduction timing — Tax deduction generally only when actually incurred (jurisdiction-specific) ([T1])
• Deferred tax impact — Material deferred tax timing difference ([T1])

7.3 Reserves estimation (PRMS)

• Petroleum Resources Management System — 1P (proved), 2P (proved + probable), 3P (proved + probable + possible). Recoverable reserves drive depletion accounting. ([T1])

Section 8 — Pillar Two interaction

• Pillar Two complexity for extractives — Extractives jurisdictions with low CIT but high royalty/severance face Pillar Two complexity: - Royalty is typically treated as "Covered Tax" if levied on income (some jurisdictions classify as production tax, ambiguous) - Severance taxes mostly NOT Covered Taxes - Carve-out for "International Shipping Income" exists; no equivalent for extractives - Substance-Based Income Exclusion (SBIE) particularly material for capital-intensive extractives ([T1])

Section 9 — Self-checks

• Fiscal regime classified (concession / PSC / service)
• Ring-fence applied where required (UK)
• EPL / SC rate current
• Royalty treatment (revenue vs Covered Tax) confirmed
• Successful Efforts vs Full Cost election documented
• ARO / decommissioning provision recognised
• Depletion / depreciation per tax basis
• EITI / CbC reporting submitted where applicable
• Pillar Two analysis for in-scope groups
• Output flags every [T2]/[T3] item for reviewer judgement

Section 10 — Disclaimer

Extractives taxation is highly specialised. Outputs must be reviewed by credentialed extractives sector practitioners. The most up-to-date version is at openaccountants.com.