Statoil ASA said the Norwegian government’s unexpected move to raise taxes on oil companies risks harming investments and casts doubt on the predictability needed for offshore production.
The government said yesterday it will limit the tax-deductible component of petroleum income so that a so-called uplift on cash flow is cut to 22 percent from 30 percent. Norway will also raise its special petroleum tax to 51 percent from 50 percent, keeping a top tax rate of 78 percent. The increase will raise total oil industry taxes by about 3 billion kroner ($520 million) a year, it said.
The plan “reduces the attractiveness of future projects, particularly marginal fields, and raises questions regarding the predictability and stability of the fiscal framework for long-term investments on the Norwegian continental shelf,” Statoil Chief Financial Officer Torgrim Reitan said in a statement.
The proposals, which will be included in a revised budget due to be unveiled tomorrow, follow planned tariff cuts that angered investors in Norway’s gas-pipeline network earlier this year. That announcement came 1 1/2 years after Prime Minister Jens Stoltenberg’s government withdrew state backing for lender Eksportfinans ASA, disrupting bond markets as far away as Japan and triggering claims of default from U.S.-based investors.
The “tax-hike proposal puts the Norwegian continental shelf’s credibility on the line,” Teodor Sveen Nilsen, an analyst at Swedbank First Securities, said in a note.
“We don’t rule out the possibility that the tax change will reduce international investors’ appetite for oil and gas investments in Norway,” he said. “The timing of the tax hike is unfortunate given the recent changes to Gassled tariffs. We assume that a higher risk premium may be applied for Norwegian continental shelf investments if the proposal is approved.”
Statoil, which is 67 percent owned by the Norwegian state, said that the changes will cut operating cash flow by less than 500 million kroner this year and increase to full effect after four to five years. It will reduce tax deductions by 38 million kroner for 1 billion kroner invested, the Stavanger, Norway-based company said.
Norway’s oil wealth has shielded it from the worst of the global economic crisis, and the nation is backed by a $740 billion sovereign wealth fund built on its petroleum income.
The government said yesterday the tax increase on oil companies will damp pressure on the country’s non-oil economy, which is struggling to compete amid rising labor costs and a strong krone. The nation’s statistics bureau expects oil and gas investments to reach a record 199 billion kroner this year. The government estimated in its 2013 budget it would have petroleum tax income of 229.9 billion kroner this year.
The net asset value of companies operating off Norway’s shores could be reduced by 2 percent to 5 percent, according to Swedbank. While Statoil’s value could drop by 1.6 percent, Det Norske Oljeselskap ASA “is probably the most vulnerable to uplift changes” and could see its net asset value reduced by 5.3 percent, Sveen Nilsen said.
Norwegian Energy Co. AS and Stockholm-based Lundin Petroleum AB could see their value fall by 2.9 percent and 2 percent, respectively, he said.
Some development projects in Norway will become less profitable and could be scrapped, said analysts Lars Henrik Roeren at SEB Enskilda and Morten Lindbaeck at Fondsfinans ASA, without giving names.
“You currently have oil-price insecurity, and now you’re getting some fiscal-regime insecurity,” Roeren said by phone. “The market doesn’t like that, and it will affect some projects.”
Det Norske fell as much as 2.7 percent and traded 1.9 percent lower at 81.2 kroner a share as of 11:36 a.m. in Oslo, while Statoil slid 0.9 percent to 136.7 kroner. Lundin, which also announced results from tests on its Luno II discovery in the North Sea, declined as much as 3.3 percent and traded 1.9 percent lower at 152.5 kronor in Stockholm.
“Expect an industry backlash,” RS Platou Markets AS analyst Alex Gheorghe said in an e-mail. “We suspect the market would trim holdings across the Norwegian E&P space in light of the lower attractiveness, predictability.”
The tax change could also have a negative impact on oil services companies such as Aker Solutions ASA and Kvaerner ASA, Sveen Nilsen and Roeren said. Aker Solutions fell 0.8 percent to 83.2 kroner, while Kvaerner dropped 0.5 percent to 9.6 kroner.