Governments who have been increasing tax rates since 2005 can either raise taxes to cover shortfalls or risk the short-term economic impact of lowering them to placate an oil industry crying out for better fiscal terms while languishing under low oil prices.

Yet governments face an added dilemma: those launching exploration licensing rounds face stiff competition in what is a buyers' market, so the fiscal terms on offer will play a critical role in determining how attractive the opportunities are perceived.

Wood Mackenzie vice president for global fiscal research Graham Kellas said fiscal policymakers around the world were reviewing their upstream fiscal terms – “and we've already witnessed changes to terms by a handful of governments” since the price began to fall last year.

“For some governments, the impact of the lower price has been devastating for public spending plans, especially those forged on oil price expectations of $US100/barrel, forcing them to slash spending with significant economic and political fallout.

"The oil revenue 'cake' has shrunk and it is hard for governments reliant on oil tax revenue to agree to a smaller slice of what's left. But if they don't offer better terms, the industry may simply stop investing. In these countries, the inclination will be to increase the government's share of oil revenue to support its budget.

“This will make new investment in the country appear even less attractive than the lower price has done already.”

"Many governments will be waiting to see if the lower price becomes established, reflecting a structural change in the industry. If so, there will be considerable pressure to revise applicable terms, but if the price continues to progress toward high levels ($80/bbl and above) then this pressure will be significantly alleviated."

Wood Mackenzie's analysis of fiscal changes from 2014 to date concludes that while there has been much talk of fiscal change in response to low oil prices, only a few governments have followed through, most notably the UK which has made the most extensive changes, encompassing all assets.

UK Chancellor George Osborne announced major changes to the North Sea tax regime in the March Budget, slashing the Petroleum Revenue Tax from 50% to 35%; while also cutting existing supplementary charges for oilers from 30% to 20%.

This move – which Osborne said were worth a combined £1.3 billion ($A2.6 billion) and were expected to boost North Sea oil production by 15% by the end of the decade – effectively reversed the hike in the 2011 Budget.

Explaining the different fiscal levers available, Kellas said governments which were less dependent on oil tax for income could afford to play the long game and will be more likely to reduce tax rates or introduce incentives to try to maintain investment while companies cut back on new projects elsewhere.

“However their ability to do this may be restricted by contracts with oil and gas operators which insist that the fiscal terms remain as they are,” Kellas added.

He said regressive fiscal terms such as royalty, export duty, cost recovery ceilings and indirect taxes had the most negative impact on future investment decisions.

These are the most obvious targets for fiscal changes, especially in systems where the minimum government share of revenue is particularly high. Equally, high marginal tax rates reduce companies' interest in incremental opportunities and may need to be lowered, or other allowances introduced.

“It's important to note that governments facing declines in oil production would be considering how they can stimulate investment in any circumstances, and depressed oil prices makes this task more difficult and more necessary,” Kellas said.

“Indonesia, in particular, may need to offer more attractive terms to try and stem its expected decline in oil production. Fiscal incentives for new investment – particularly challenging projects such as unconventional resources - are likely to become common.”

In deciding whether governments change their fiscal terms under the current price requirement, Wood Mackenzie listed the key considerations as follows:

• Are the fiscal terms making projects uneconomic?
• Is the tax rate too high?

• Are there legal constraints on changing the terms?

• Is there a history of fiscal changes?
• Is the government dependent on oil taxation?
• What is the trend in oil production?