For countries having petroleum resources, a common objective of the Ministry of Energy is to
maximise the net total government take from the petroleum industry. Most models of
petroleum taxation, assuming symmetric information, recommend neutral taxation. A royalty
is not optimal in this case as it gives disincentives for extraction, causing too much of the
reservoir to remain unexploited. Through the operating activities, however, the companies
obtain private information about the costs. A low cost company may conceal its information …