A Review of the Nigerian Energy Industry

Norway tax rise ‘under review’

Oil rig West-Africa27 January 2014, News Wires – The Norwegian government has reportedly launched a review of a controversial tax increase that has threatened investments in offshore field projects.

The move apparently opens the door for possible changes to the tax measures, imposed by the previous Labour-led administration without consultation with the industry, that triggered an outcry from oil companies.

Petroleum & Energy Minister Tord Lien told Norwegian business daily DN that his ministry is now engaged in a dialogue with the industry, various agencies within the sector and the Finance Ministry to re-examine the fiscal changes.

Lien said the Conservative-led government, elected last September, would “look thoroughly at the arguments” for and against the tax hike, which he said should have been done before it was imposed.

“We are now carrying out the work the [previous] red-green coalition government should have done. We will not draw any conclusions until we have received feedback,” he said.

The fiscal change effectively reduced the percentage of investment costs oil companies can deduct against tax from 91% to 88% through a cut in capital uplift while also increasing a special petroleum tax from 50% to 51%.

Oil companies, led by state-owned Statoil, complained after the shock move was announced in May last year that it would cost the industry, which is already struggling with high costs, an additional Nkr70 billion ($12.1 billion) in tax.

They warned it 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.

Statoil has put a final investment decision on its proposed $15 billion Johan Castberg field project in the Barents Sea on hold because of the tax hike, as well as higher costs and resource uncertainty, with the development concept now being re-evaluated.

The fiscal increase is believed to have hit the economics of a number of other smaller projects, such as Shell’s Linnorm and RWE Dea’s Zidane field schemes in the Norwegian Sea that are also under review by the respective operators.


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