Statoil Puts $10 Billion U.K. Investment Plan on Hold After Tax Increase

Statoil ASA (STL), Norway’s biggest energy producer, put on hold a $10 billion plan to develop the Mariner and Bressay fields in the U.K. and said it will be less likely to buy British assets after a tax increase.

Statoil was developing the Mariner and Bressay heavy oil fields off the U.K. and had scheduled production to start by 2017. The Stavanger-based company paid Nautical Petroleum Plc (NPE) 87.5 million pounds ($140 million) for 21 percent of Mariner in September, raising its stake to 65.1 percent.

The new taxes “are tremendously negative,” Peter Mellbye, Statoil’s head of international development and production, said yesterday in an interview in Oslo. “We had a concept that was profitable, but a large part of this profitability has now been lost through the tax increase, so we have to rethink whether we can proceed with these projects.”

The U.K. last week raised taxes on oil production profit to 62 percent from 50 percent to pay for a lower consumer levy on gasoline. It’s the third change in a decade that has seen the state’s take double, Theepan Jothilingam, an analyst at Morgan Stanley & Co., said in a note last week.

Statoil, which operates about 80 percent of Norway’s oil and gas production, is counting on expanding abroad to counter declining output at home. The company last year missed both its initial and revised production estimates and in February cut its output target for 2012 to about 2 million barrels of oil equivalent a day, from a target of 2.06 million to 2.16 million.

The two U.K. fields have combined resources of about 600 million barrels, Mellbye said.

Job Creation

“So considerable investments, considerable job creation, and an operational system we were going to build up in Aberdeen -- all this has now been put on hold,” he said. “We were going to award a feed contract now, and that has been postponed.”

Statoil is involved in exploration in about 21 licenses in the U.K. and employs 243 people in the country, according to its annual report.

The Office for Budget Responsibility expects the tax increase will have “no significant impact” on investments and production, Chairman Robert Chote told Parliament’s Treasury Committee today. Edward Troup, a U.K. Treasury official, said Statoil was postponing the decision, not the investment.

Greater Returns

“When there’s a change which has a significant fiscal impact, the businesses affected will want to stop and think and make sure their numbers work,” Troup said in parliament. “Our own analysis shows that over next five years the post-tax return per barrel of oil, and gas equivalent, to be greater than the return over the last five years. We don’t think it will make a material difference” on investment, he said.

Photographer: Dag Myrestrand/Bitmap via Bloomberg

Statoil’s head of international development and production Peter Mellbye. Close

Statoil’s head of international development and production Peter Mellbye.

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Photographer: Dag Myrestrand/Bitmap via Bloomberg

Statoil’s head of international development and production Peter Mellbye.

A U.K. Treasury spokesman, who declined to be named in line with government policy, also said the government would be “happy to continue our dialogue with the oil industry.”

The Treasury pointed out that the March 23 budget said that the government will consider extending tax breaks for spending on marginal fields to recognize “the importance of continued investment in the North Sea.”

The tax increase will lower the value of fields that are being sold in the U.K., where deals have already been hampered by the cost of dismantling decades-old platforms, analysts and executives said.

‘Slam the Door’

“I know of one deal that stopped within half an hour of that tax being announced,” Mike Tholen, economics and commercial director at Oil & Gas U.K., said last week, declining to specify the deal. “We had seen asset sales starting to decline already when companies were worried about decommissioning, and the uncertain tax regime makes it much harder to work out prices.”

There are about $3 billion in assets for sale in U.K. waters, according to PLS Inc.’s Mergers and Acquisitions database. The biggest seller is BP Plc (BP/), seeking buyers for about $1 billion in fields in the southern North Sea.

“They’ve wanted more developments offshore U.K. and then they come and slam the door in our face,” Mellbye said. “There are a lot of assets in the U.K. that aren’t all that interesting anymore now.”

Statoil is partner with Eni SpA (ENI) and Nautical Petroleum Plc in the Mariner field, while Royal Dutch Shell Plc (RDSA) holds a stake in Bressay.

To contact the reporter on this story: Marianne Stigset in Oslo at mstigset@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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