Norway to Keep Oil Company Tax Increase Amid Incentives

Norway’s incoming Conservative-led government won’t reverse a recent tax increase for oil companies and will instead seek other incentives to improve recovery rates in Western Europe’s biggest producer.

“Reversing this issue isn’t on the agenda,” Conservative Party energy spokeswoman Siri Meling said by phone today. “That would be sort of back-and-forth policy making, and we don’t want that kind of unpredictability. It’s better to spend some time now to look at how we can rig possible changes.”

The Conservative Party and Progress Party, which will form a government this month, said yesterday they would consider tax changes to give oil companies incentives to boost recovery rates at producing and marginal fields, as well as improve resource management.

That won’t include reversing a May decision by the departing Labor-led coalition to limit tax deductions for oil companies, cutting a so-called uplift on cash flow to 22 percent from 30 percent. Statoil ASA, Norway’s largest oil and gas producer, has said the tax change would harm investments, particularly on marginal fields, and rock the country’s reputation as a stable environment for long-term investors. It cited the reform as one reason for delaying its Johan Castberg oil project in the Arctic Barents Sea.

The Progress Party, which said before the Sept. 9 election it favored a reversal of the tax increase, said the new government’s policy platform showed it would seek to avoid abrupt changes in the oil industry’s legal and fiscal framework.

Lofoten Islands

“It signals that the oil-tax increase Labor suddenly pulled out of its pocket, that’s not the way we will operate,” Ketil Solvik-Olsen, a deputy party leader, said in an interview.

The Norwegian Oil and Gas Association, an industry lobby group that last week criticized the new coalition for renouncing exploration off the environmentally sensitive Lofoten islands to win support from smaller parties, said the political platform presented yesterday was “positive.”

The parties declined to comment on what measures will be used to boost recovery rates, saying it was too early to give details.

Options may include allowing small fields that link into bigger developments to use the same tax rules as the older production site, as the May tax change only applies to new projects, Teodor Sveen Nilsen, a Swedbank First Securities analyst, said in an e-mail. Another possibility would be to allow small and marginal developments to pay zero or reduced rates of the country’s special petroleum tax, he said.

‘Wise Decision’

“I think it’s a wise decision to not reverse the tax change made in May,” he said. “One should not underestimate the value of stability.”

Incentives for increased recovery rates will probably be especially positive for companies such as Det Norske Oljeselskap ASA and Norwegian Energy Company ASA, which own several marginal fields, Sveen Nilsen and RS Platou Markets analyst Alex Gheorghe said in separate e-mailed notes to clients.

Norway’s next government will make increased recovery a criterion when awarding projects, it said in its policy platform. It will also seek to lower costs for oil companies, keep a “predictable and high pace” for license-awards and continue re-licensing blocks in mature areas, boost petroleum research and increase natural-gas use by mainland industries.

In future licensing rounds, the new government aims to stimulate competition on the Norwegian continental shelf, where Statoil operates more than 70 percent of oil and gas production. That means that while Statoil will remain “a big and important powerhouse,” its relative share of operatorships and other licenses could fall, the Progress Party’s Solvik-Olsen said.

Statoil Stake

The government will also strengthen Petoro AS, the company that manages the state’s direct stakes in oil and gas fields, by allowing it to fund operations with its cash flow rather than through the national budget.

Conservative Prime Minister-designate Erna Solberg has said a government led by her may cut the state’s 67 percent stake in Statoil to as little as 51 percent.

“If we find strategic alliances or things that ensure the company is strengthened from it, we’re positively inclined to look at it,” Solvik-Olsen said. “We’re not announcing any changes in the state’s owner relationship with Statoil” at the moment.

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