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This chapter is about the kind of relevant cash flows oil companies calculate as opposed to the kind they estimate (which were discussed in the last chapter). So, basically, I’m going to talk about tax and the various other forms of income that countries’ governments receive from oil fields and oil companies.

But here’s a short story first. I always imagined tax was such a complex subject that you had to have a PhD in physics, or something like it, to understand it; and that was especially a concern of mine in my early years as a petroleum economist because tax involves such large sums of money. Well, one day back then, I didn’t understand some calculations relating to tax, and so I wandered along to the tax department for some help. There I met a young gentleman who, it turned out, hadn’t been with the company for long either. Before I sought his help, we chatted for a few minutes. “So what’s your background,” I asked. “I’ve just finished my PhD in physics,” he replied.

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