Investors Mount Attack on Norway in $20 Billion Oil, Gas Row

Allianz SE, Abu Dhabi’s wealth fund and firms including Statoil ASA have mounted a multi-pronged battle against Norway to defend revenue and oil- and gas-industry projects valued at $20 billion.

Owners in gas pipelines, led by Allianz and Abu Dhabi, are suing the government in Oslo over cuts in tariffs for fuel transportation, while oil and gas producers are fighting to avoid a tax increase on extraction. They say 120 billion kroner ($20 billion) in combined revenue and investments are at stake.

“The tax increase on the Norwegian shelf comes at the worst possible time as oil companies all over the world are struggling with cash flow and value creation,” Jarand Rystad, managing partner at Oslo-based consulting firm Rystad Energy AS, said by e-mail. “The best would be to put the whole project back in the drawer, so Norway can preserve its reputation as an oil country with a stable framework.”

The Conservative-led government, which took power in October, is defending its decision to commit to the previous administration’s plan to cut tariffs and raise taxes. A proposal in December to exempt some projects from the tax increase doesn’t go far enough and risks thwarting about 80 billion kroner in drilling projects as companies struggle with rising costs and flat oil prices, the industry says. The tariff cuts threaten to crimp revenue from gas transports by 40 billion kroner, the operators have said.

Attractive Stability

While the new government has said it’s looking into the consequences of the tax increase and isn’t ruling out future changes, it’s justified in not undoing the previous administration’s work, said Nordea Markets’ oil and commodities analyst Thina Saltvedt.

“You can’t change tax regulations every four years,” she said in a phone interview from Oslo yesterday. “If it changes all the time it creates a lot of uncertainty, which will make it unattractive to come here.”

Both the government and the opposition say the tariff cuts will promote exploration and help western Europe’s largest gas producer to sustain output.

The criticism from investors comes after Norwegian Petroleum and Energy Minister Tord Lien said this month he would seek to attract more companies to help develop resources as Statoil cuts spending.

Oil Fund

Norway gets almost a quarter of its economic output from oil and gas. It channels the income into an $830 billion sovereign wealth fund to avoid overheating the domestic economy. Norway says it wants to support its oil industry after crude production slid for 13 consecutive years amid dwindling North Sea deposits.

Allianz, Europe’s largest insurer, this month wrote a letter to Prime Minister Erna Solberg asking for a meeting after the tariff cuts led to “significant” losses and writedowns on its 6.1 billion kroner ($1 billion) investment.

The insurer said the cuts have damaged trust in Norway, potentially harmed investment in infrastructure in general and hurt German and Norwegian citizens.

“As the leader of a new government, you have the opportunity to take a fresh look at the adjustment of tariffs and possibly reverse an incomprehensible discrimination of committed long-term investors,” Allianz Chief Executive Officer Michael Diekmann and executive board member Maximilian Zimmerer said in the letter dated Feb. 7. The correspondence was obtained by Bloomberg through a freedom of information request.

‘Forbidden Discrimination’

The pipeline investors, which also include funds run by UBS AG and Canadian pension funds, are also protesting last year’s tax increases and the failure to give exemptions to 5.9 billion kroner ($980 million) in projects.

Failing to exempt constitutes a “discrimination forbidden under Norway’s legal commitments to the European Economic Area,” the owners said in a letter to the Finance Ministry posted on the government’s website. Four other Gassled owners, Statoil ASA, ConocoPhillips, GDF Suez and DONG Energy A/S, also signed the letter to the Finance Ministry.

The tax exemptions are also seen as too narrow by oil producers, including Statoil, Conoco and Royal Dutch Shell Plc. Planned drilling projects estimated to cost 80 billion kroner could be scrapped if they’re not exempted, the Norwegian Oil and Gas Association said last week.

Last year’s tax change reduces the share of investments that companies can deduct from their income while keeping petroleum-industry taxation at 78 percent.

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