Oslo — Norway proposed on Thursday to temporarily ease tax rules for oil firms to try to prevent a collapse in investments due to the coronavirus pandemic and a related collapse in crude prices.
The plan could boost the liquidity of oil companies by as much as 100 billion Norwegian crowns ($9.7 billion) over 2020 and 2021, Prime Minister Erna Solberg said.
The companies will be allowed to write-off investments more quickly, effectively postponing tax payments until later years.
Norway is western Europe’s biggest oil and natural gas producer, and represents about 2% of global crude output. It has been hit by the plunge in oil demand as countries lockdown their economies to tackle the pandemic and a slump in crude prices.
The plan does not change the headline tax rate of 78% that oil firms pay on profits, but by raising deductions on new investments, the taxable profits will become smaller in the next several years.
“Even if the government pursues a policy of becoming less dependent on oil, it’s important to prevent the current crisis from making the decline so rapid that we lose key competence that will help the transition,” said Solberg, who leads a minority government.
Teodor Sveen-Nilsen, an analyst at Sparebank 1 Markets, said the plan would particularly benefit companies with tax losses and/or a substantial portfolio of potential developments, such as Aker BP and OKEA.
It will have less impact on Norway’s largest oil and gas firm, state-controlled Equinor, which has 30-40% of all production outside Norway, or Kurdistan-focused DNO and Lundin Energy, he added.
The government will also present, at a later stage, a restructuring plan to help the transition to a greener economy, as Norway needs to cut carbon dioxide emissions, Solberg said.
“The way out of the crisis is about becoming greener, creating jobs and be competitive,” she said.
Separately, late on Wednesday the government said it would join other major producers in cutting oil output this year to try to help prices recover.
Norway, which is not a member of the OPEC+ group of countries leading the output reduction, will cut crude output by 250,000 barrels per day (bpd) in June and by 134,000 bpd in the second half of 2020. The start-up of production of several fields will also be delayed until 2021.
Gas fields, fields bordering other countries and fields a late production phase are exempt.
The combination of output cuts and delayed start-ups, due to coronavirus-related restrictions among other things, will amount to a reduction of 300,000 bpd in December, with postponements accounting for 166,000 bpd of that, the oil ministry said.
The postponed startups include Equinor’s Martin Linge, Njord and Bauge, ConocoPhillips’ Tor and Repsol’s Yme, due to coronavirus-related restrictions, it said.
However, some analysts said the cuts looked more impressive on paper than in reality.
Analysts at Norway’s biggest bank, DNB, said that due to an inflated baseline for calculating the reductions, actual production cuts were likely to be about 25,000 bpd in June and 44,000 bpd for the rest of the year, based on previous production forecasts by the Norwegian Petroleum Directorate and adjusted for increased output from the Johan Sverdrup field.
“As such the Norwegian production cuts have insignificant impact on our oil market balance, but we see it as a solidarity gesture towards the OPEC+ countries and the global oil industry,” they said.
Oslo-based energy consultancy Rystad Energy also said the cuts were too small to have a material impact on the global market.
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