Majors stand to benefit most from Norwegian tax amendment

Norway’s recent tax-relief proposals could double post-tax cash flow for the country’s oil and gas sector in 2020 and 2021, according to GlobalData.

The analyst’s ‘COVID-19 Case Study: Upstream Tax Relief in Norway’ report says this year’s commodity price collapse forced E&P companies to reduce their near-term capex.

Norway’s government responded by announcing that a Special Petroleum Tax allowance depreciation schedule would be brought forward to cover all investments in 2020 and 2021, and eligible projects between 2022 and 2024.

Toya Latham, upstream fiscal analyst at GlobalData, said: “Of the pre-financial investment decision (FID) fields which are under consideration for development in Norway, and that are targeting FID prior to 2023, Equinor is either the operator or a participant in 16 projects, and therefore could make significant gains if the new terms are introduced.

“Although Aker BP has interest in fewer fields, the company also stands to benefit with the NPV10 of its pre-FID Norwegian portfolio estimated to increase by almost 50%.”

Aker BP reacted instantly to the new proposals, sanctioning the Hod field redevelopment in the southern Norwegian North Sea.

Soon afterwards, the company entered an agreement in principle with Equinor concerning a coordinated development of the Krafla, Fulla and North of Alvheim licences (the NOAKA project), previously deemed economically marginal.

Ms Latham cautioned, however, that “given the relatively constrained timeframe of the proposal, the incentive is only likely to benefit recently sanctioned and smaller projects.

“For larger projects, such as Wisting [in the Barents Sea], it is possible that a significant portion of investment could fall after the 2024 cut-off, and therefore would not be eligible for the tax relief under the current proposal.”

Source: Offshore Magazine