Statoil ASA, Norway’s largest oil producer, said it may be forced to relocate operations and jobs abroad if it’s no longer allowed to deduct the cost of overseas exploration and development from taxable income at home.
Norway’s government, in its budget proposal for 2013, said it would eliminate the right to deduct such costs as it seeks to bring in about 500 million kroner ($88 million) in additional tax revenue in 2013.
“The consequence of that is that jobs and business are likely to be moved out of Norway,” Statoil Chief Financial Officer Torgrim Reitan said today in a presentation in Oslo. “It gives a clear incentive to change the legal structure of the company.”
Statoil has seen overseas costs rise as it expands in countries such as the U.S., Angola and Brazil to counter falling production from aging fields off Norway. The Stavanger-based company plans to increase production to 2.5 million barrels of oil equivalent a day in 2020 from about 2 million now as it increases investment in international production.
Exploration expenses at Statoil’s international units jumped 90 percent to 11.1 billion kroner in the first nine months of 2012 from a year earlier, according to the company’s third-quarter report. Exploration costs fell 28 percent to 2.3 billion kroner in Norway.
The Scandinavian country’s tax system “subsidizes” oil recovery abroad by allowing Norwegian companies to deduct exploration and development costs from income related to onshore operations in Norway, the government said in its budget plan. The nation, which receives only “modest” taxes from the companies’ overseas production, has proposed to end cost deductions as well as the levies themselves.
Reitan said the changes, which have been presented to Parliament and “will probably be voted into law,” would reduce the profitability of Statoil’s international exploration and make the company less competitive when bidding for licenses abroad.
“We are still puzzled that the Ministry of Finance seems not to have the competitiveness of the Norwegian tax system higher on its agenda,” he said. “We are also surprised by the way the ministry states that there is not any need to put in place any measures to keep employees in Norway.”
Reitan declined to elaborate on the cost impact of the changes, or on which operations and jobs may be relocated.
“We are in a phase where we are assessing what this means, and what adjustments we will have to make,” he said in an interview following his presentation.