A Review of the Nigerian Energy Industry

Norway Budget silent on oil tax

Sunbird-Energy-Buys-Stake-in-Irubesi-Gas-Project-Off-South-Africa08 November 2013, News Wires – Norway’s new government has pledged to pump more cash into increased oil recovery efforts but stopped short of addressing tax increases that the industry fears will hit such projects in presenting its revised national Budget for next year on Friday.

All eyes were on debutant Finance Minister Siv Jensen, leader of the Progress Party that won power with the Conservatives in recent elections, to see whether she would boost spending from the country’s huge Petroleum Fund and tackle the thorny tax issue.

Oil companies cried foul earlier this year when the previous Labour-led administration increased the special petroleum tax and cut the threshold for deduction of investments.

The industry complained the move would undermine the profitability of maintaining tail-end production from mature fields, leaving more resources left untapped, as well as hit investments in projects with marginal economics and those requiring major infrastructure spending.

State-owned Statoil has put on hold an investment decision on the Johan Castberg field in the Barents Sea partly due to the tax hike, as well as resource uncertainty and higher costs.

However, the Conservative-led government remained silent on whether the fiscal changes would be postponed pending a study of their potential impact, as has been demanded by industry body Norwegian Oil & Gas, while a reversal of the move is apparently ruled out.

Both the ruling parties had earlier promised to review the tax changes.

The new administration has though proposed boosting the allocation for petroleum research, including efforts to increase oil recovery, by 15% compared with the previous Budget proposal to Nkr36 million ($5.9 million).

The administration will also provide an additional Nkr10 million each to the Norwegian Petroleum Directorate (NPD) and state holding company Petoro as part of efforts to optimise resource management.

“This confirms that we will raise our efforts in research and increased recovery of our resources,” said Petroleum & Energy Minister Tord Lien.

The government is though slashing the NPD’s funding for seismic and geological survey work by Nkr55 million to Nkr75 million.

Furthermore, it intends to provide Nkr154 million to carbon capture and storage (CCS) agency Gassnova to promote Norway’s efforts to develop its first full-scale CCS plant by 2020 after a proposed project at Mongstad was recently scrapped due to rising costs and doubts about its commercial viability.

A further Nkr50 million will be allocated for modifications to the existing technology centre for CCS at Mongstad, with the government to present a new strategy for carbon capture.

The revised Budget presented by Jensen, which included tax cuts of around Nkr4.8 billion, proposes using Nkr139 billion from the Petroleum Fund – an increase of Nkr3.9 billion from that proposed by the previous government and of Nkr15 billion compared with this year.

However, the proportion of the fund being used will remain the same at 2.9% – well within the 4% spending limit imposed to prevent overheating of the economy – after the expected size of the fund by year-end has reportedly been revised upwards to Nkr5 trillion, compared with the Nkr4.7 trillion estimate that formed the basis for the original Budget.

The ballooning fund, which currently stands at around $800 billion (Nkr4.88 trillion), is expected to increase to $870 billion by the end of next year and $1.2 trillion by 2020.

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