Property Rights, Economic Rents, BNOC, and North Sea Oil
The British National Oil Corporation (BNOC) was established in 1976, formally with the passing of the 1975 Petroleum and Submarine Pipelines Bill and practically as the result of negotiations between the UK government and the oil companies. Established with an initial capital of £600 million, BNOC was required to pay all of its revenues into a new account, the National Oil Account, and it was able to draw on this account to fi nance its activities. Potentially, the Petroleum and Submarines Pipelines Act gave the UK government virtually total control over the exploration and development of North Sea oil resources. In fact, the government chose to confi ne BNOC’s interest to 51% of new commercial discoveries and, as in Norway, it opted for a so-called carried interest system of participation. The oil companies were licensed to explore particular blocks in the North Sea on the understanding that in the event of oil being discovered, the government could take a 51% interest in the project. The state thereby specifi cally arranged that it would not bear any of the costs of ‘dry holes’ discovered during exploration. In Norway, Statoil, and in the UK, BNOC, were established to oversee the state’s interests in the offshore projects. BNOC was, in a sense, the government’s eyes and ears in the North Sea. The main use made of licenses was as a means of controlling the rate of output, both by means of the rate at which licenses were issued and then, when oil was found, through BNOC’s 51% equity interest. The task of extracting economic rent was assigned to taxation, notably the petroleum revenue tax (PRT) which was introduced in the 1975 Oil Taxation Act and from which BNOC was exempt. The PRT was levied prior to corporation tax, initially at a rate of 45% on the assessable profi t from each oilfi eld (Webb and Ricketts 1980, 172; Millward 2005, 227-228).