Norway Eases Oil and Gas Tax Requirements
Norway's Prime Minister Erna Solberg has presented a package of measures intended to help the oil and gas industry maintain activity during the COVID-19 pandemic.
The petroleum industry is Norway’s largest and most important industry in terms of share of value added, state revenues, export value and investments. The COVID-19 pandemic and the restrictive infection control measures that have been introduced in Norway and around the world have severely affected the global economy, and oil prices have plunged. As a result, investments are grinding to a halt. On the Norwegian shelf, both planned developments and ordinary maintenance are being postponed. Orders are not materializing, and there is a great deal of uncertainty.
Norway has decided to cut oil production by 250,000 barrels per day in June and by 134,000 barrels per day in the second half of 2020. In addition, the start-up of production of several fields will be delayed until 2021. Consequently, the total Norwegian production in December 2020 will be 300,000 barrels less per day than originally planned by the companies.
The Government is proposing temporary amendments to the petroleum tax system that, in practice, will mean that tax bills are postponed. Oil and gas companies will be allowed to deduct investments, including uplift, from the special tax base immediately. Uplift will be reduced from 5.2 percent for each of the first four years to 10 percent for the first year only. This will apply to investment costs the companies incur in 2020 and 2021 and to investments included in plans for new developments that are submitted by the end of 2021 and approved by the end of 2022, and until production starts. The companies will be able to have the tax value of losses in the income years 2020 and 2021 refunded.
The liquidity effect of the changes is anticipated to free up as much as NOK 100 billion ($10 billion) for investments in 2020 and 2021.
“We have known for a long time that investments on the Norwegian continental shelf will fall. The Government is seeking to make the Norwegian economy less dependent on oil, but it is vital to ensure that the crisis we are now experiencing does not result in such a sudden and deep decline that we lose valuable expertise that we need for the transformation of Norway’s economy,” said Solberg.
The Government is also proposing a green restructuring package for the business sector. This will include increases in funding for renewables development and green shipping.
The details of the green restructuring package will be announced when the Government presents a package of measures for its COVID-19 exit strategy towards the end of May.