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the leases followed by escalating annual fees and a 12�-percent
royalty based on gross value of total oil and gas production at
the wellhead. The 12�-percent royalty rate was approximately the
same as the royalty rate that was used by most oil-producing
countries throughout the world. The terms of the licenses also
required the licensees to conduct seismic survey work and to
drill a specified number of exploratory wells.
Royalties due under the North Sea licenses issued by the
United Kingdom were allowed to be paid in kind by the oil
companies.
To actually operate in the North Sea, oil and gas companies
holding licenses were required to pay the license fees and
royalties and to complete exploratory work programs specified in
the licenses.
During 1972 and early 1973, the Public Accounts Committee
(PAC) of the U.K. House of Commons held hearings on U.K. tax and
energy policies with regard to the North Sea. At the time, there
were indications that crude oil prices might increase
significantly, although the price increases that later occurred
as a result of the 1973-74 Arab oil embargo were not anticipated.
In February of 1973, PAC issued a report summarizing the
discretionary licensing system that primarily had been used by
the United Kingdom for the first four license rounds for the
North Sea. In the 1973 report, PAC made no recommendation that
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