Statoil delays Barents Sea oil project on Norway tax change plans
BY JOHANNES LEDEL
STOCKHOLM -- Statoil recommended delaying one of its major oil projects in the Barents Sea, saying changes in petroleum taxes planned by the Norwegian government puts the viability of the development into question.
The move marks an escalation in the debate over the impact of the tax changes on oil and gas developments in Norway because of the large scale of the project now in doubt.
Statoil's announcement is surprising because, "this is not a marginal project" said Trond Omdal, equity analyst at Arctic Securities. The Johan Castberg project in the Barents Sea represents one the larger oil finds in the recent years, he said.
The proposed change to Norway's petroleum tax reduces the attractiveness of future projects, "particularly marginal fields and fields which require new infrastructure" said Oystein Michelsen, Executive Vice President for development and production for Statoil in Norway, in a statement.
Statoil said it will continue to drill four exploration wells around the Johan Castberg project, located 240 km northwest of Hammerfest in Norway, with the intention of establishing whether there are additional resources that could make the economics of the development more robust.
The Norwegian government's tax plans, would lower the amount of development subsidies paid to oil and gas companies, in order to offset tax cuts planned for non-oil companies. With the reform, oil companies would have to start paying 12% of their project development costs as of 2014, compared with 9% previously.
The government linked the proposal to a series of cost overruns on offshore projects, fueled by generous tax deductions and cost inflation because of rapidly rising oil and gas activity offshore Norway. The country's Minister of Finance, Sigbjorn Johnsen, said as the plans were introduced that there, "is a weakness in the oil tax system which must be adjusted, and I think it's important that we, over time, increase the cost awareness on the shelf."
Mr. Johnsen said that there would still be, "a very investor friendly taxation system on the Norwegian shelf."
At the end of May, the executives of 15 oil companies made a joint statement, published by the Norwegian daily newspaper Dagens Naeringsliv, critical of the proposed tax reform. "It takes decades to build credibility in a stable [tax] framework, but it takes only one decision to tear it down" they said. Increased uncertainty, "must necessarily affect" project decisions, they said.
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