Validating oil and gas royalty rate measurement scale: evidence from Nigeria

Abstract

PurposeThis study aims to validate the royalty rate measurement scale by using rigorous scale validation procedures.Design/methodology/approachEvaluation of reliability and validity of the measures of royalty rate was performed through confirmatory factor analysis (CFA) using SPSS version 25 and PLS-SEM version 3.8.FindingsThe results provide evidence that the royalty rate measurement scale has achieved reliability and validity criteria.Research limitations/implicationsConsequently, policymakers, practitioners and researchers can adopt this scale to assess the royalty rate in other energy sectors where royalty arrangements exist in different jurisdictions across the globe.Practical implicationsThe practical contributions of the study are threefold. First, the validated scale presented in Table IV can serve as a checklist for oil and gas producing countries while assessing the stringiness or otherwise of their royalty rates. Second, the validated scale can be used to assess the perception of oil and gas companies with regards to the royalty rate as whether the rate is too high and worrisome or is acceptable. Finally, it could also be used to assess the role of regulatory bodies in assessing royalty rates while dealing with multinational and local oil companies. Eventually, the scale can assist policymakers across the globe to adapt in investment decision-making, particularly regarding royalty arrangement.Originality/valueThis study undoubtedly builds the existing literature and contributes to the subject area; by implication, the validated scale will assist host oil and gas countries with stringent royalty rate to revise the royalty policy in such a way to ensure neutrality, thereby not chasing away the current investors or discouraging prospective ones from investing in their oil and gas industry.