A broad majority in the Norwegian Parliament supports a proposed stimulus package for the oil and gas industry. Now we will do our outmost to mature new projects, says Managing Director in Lundin Energy Norway, Kristin Færøvik.
The objective of the temporary change in tax regime is to defer much of the tax burden, thus freeing up liquidity and boosting profitability, thereby triggering new projects and employment now. New projects and increased activity is crucial to the supplier industry in Nrway.
– First and foremost, this is important for the industry as a whole, says Kristin Færøvik, Managing Director of Lundin Energy Norway.
-We are in a situation where especially the supplier industry in Norway is in a difficult situation. The temporary changes in taxation will help counteract this.
The economy in projects covered by the scheme will improve, and we will of course look for projects that can be accelerated. For Lundin Energy Norway, we have a few opportunities within our pipeline which could benefit from this fiscal stimulus package, specifically the phase 2 of the Solveig development is a good candidate; the first part of the development is well underway.
Another potential project is a full-field development of Rolvsnes, our weathered & fractured basement reservoir discovery. In the first instance, we will conduct a long-term production test from the reservoir. If the test is successful, Rolvsnes could be a development project, says Kristin Færøvik.
About the stimulus package
The ordinary tax system for operating companies on the Norwegian shelf consists of several elements. The same as for onshore industry, a corporation tax of 22% is paid on the company’s profit. In addition, the oil companies pay a special tax (tax on economic rent) of 56%, for a total of 78%. The overall total tax rate has remained unchanged at 78% since 1992. The corporation tax has been reduced from 28% to 22% during the period, but the special tax for the oil companies has seen a comparable increase.
Linear depreciation over 6 years applies for investments on the Norwegian shelf. As regards the special tax portion, the oil companies can deduct a so-called uplift (non-taxable income) of 20.8% of the investment, which is distributed over four years.
The most important changes proposed in the stimulus package are:
- For investments made in 2020 and 2021:
- They can be charged as expenses in their entirety against special tax in the investment year.
- Uplift is increased to 24% and can also be fully deducted in the investment year.
- The same applies for projects where the PDO/PIO is submitted by the end of 2022 (and approved by the Storting by the end of 2023), but for the entire investment period up to production start.
- Depreciation against corporation tax is still done on a linear basis over 6 years.
- Reimbursement of the tax value of deficits that arise in 2020 and 2021 against both corporation tax and special tax.
- An agreement will be established between the parties that will ensure emission reductions from the Norwegian shelf, and that increased employment will take place in the form of jobs in Norway. New projects is crucial to the Norwegian supplier industry in the current situation.
Work is also under way to ensure that a landing terminal for fields in the Barents Sea is built at Veidnes in Finnmark county.