Statoil Delays Barents Sea Oilfield Project After Tax Boost

Statoil ASA delayed an investment decision on the Johan Castberg oilfield in the Barents Sea after the government unexpectedly last month announced it would raise taxes on oil and gas producers.

The tax increase reduces the attractiveness of marginal fields and those that need infrastructure, Oeystein Michelsen, Statoil’s head of development and production in Norway, said today in a statement. “This has made it necessary to review the Johan Castberg project.”

Statoil, Norway’s biggest energy company, already warned on May 24 that projects such as Castberg, which consists of the Skrugard and Havis discoveries, would be “more challenging.” The project, located about 240 kilometers (150 miles) off the coast of Hammerfest in northern Norway, needs new infrastructure and was already a challenge, the company said.

The government has drawn criticism from producers, including Statoil, ConocoPhillips and Exxon Mobil Corp., after this month announcing a surprise tax increase. Norway, western Europe’s largest oil and gas producer, is trying to boost petroleum output by expanding off its northern coast as output falls from maturing fields in the North Sea.

“The updated project estimates and the new uncertainty in the tax framework has made it necessary to consider what consequences this may have for the development concept,” Michelsen said.

Attracted Criticism

Norway will limit the tax-deductible component of petroleum income, cutting the exemptions on free cash flow to 22 percent from 30 percent, the government said on May 5. It will also raise its special petroleum tax to 51 percent from 50 percent, keeping a top tax rate of 78 percent. The measures will raise oil industry taxes by about 3 billion kroner ($517 million) a year, it said.

Statoil Chief Executive Officer Helge Lund has criticized the move, saying a stable political and regulatory environment has been Norway’s “most important competitive advantage” in the past 20 years. Political will is essential for the development of the Arctic, he said in a speech near Oslo today.

While the delay of Castberg “isn’t good news,” it’s not unusual given the size and complexity of the project, with investments estimated at “close to” 100 billion kroner, Oil and Energy Minister Ola Borten Moe also said near Oslo today.

Political Will

“We’ll see Johan Castberg developed and built,” he said. “It’s very important for Norway, it’s very important for the north of Norway and it’s also very important for Statoil.”

The Castberg project, which may hold as much as 600 million barrels of recoverable crude, has helped rekindle interest in the Barents Sea after a decade of disappointing results.

Statoil, based in Stavanger, is the operator of the field and has a 50 percent stake. Italy’s Eni SpA has 30 percent, and Petoro AS, which manages Norway’s direct stakes in its oil and gas fields, holds 20 percent. Statoil had originally planned to submit a plan for development and operation to the government for approval next year before starting production in 2018.

Norway remains committed to developing the waters off its northern coast and expects “a lot of licensing” in the Barents Sea when the results of the 22nd licensing round are announced “in the near future,” Borten Moe said today. The government will consider regional support for oil and gas activities if needed, as was done with the development of the Snohvit gas field off the coast of Hammerfest, he said.

“The political will is there, the optimism is there and personally I think we’re on the doorstep of large developments and a huge increase in activities in the Barents,” he said.

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