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Despite warnings that the oil and gas industry is not sustainable, either due to its environmental footprint or the disruptive impacts of the Covid-19 pandemic, those with a stake in the sector are not eager to see the industry fall apart. One such player is Norway, which supplies around a quarter of the EU’s natural gas demand, and where crude oil and natural gas exports accounted for 47% of the country’s total export value in 2019.
With oil and gas so entrenched into the Norwegian economy, the government has taken drastic steps to protect the sector in increasingly uncertain times for offshore operations. While the Norwegian offshore tax structure was once a picture of stability, the state has made radical, temporary changes to its taxation framework amidst the Covid-19 pandemic, which has seen oil demand collapse and companies struggle to make ends meet.
With tax rebates set at 100% of capital expenditure, the move aims to nurse the industry through the pandemic, and ensure new projects continue to be financed. Figures from Rystad Energy suggest that the plan could reduce breakeven prices for projects by an average of around 40%, and with such dramatic savings on the table, many are questioning whether such sweeping tax reforms could be implemented in other major oil and gas producers around the world.
New taxes in Norway
The country’s new tax rules aim to encourage continued investment in the offshore sector despite concerns over the industry’s long-term viability. The Norwegian oil and gas sector has been subject to two taxes, a standard company tax rate between 20% and 30% and a special tax rate between 50% and 60%, since 1975. The variation in both taxes is key, as they are frequently adjusted to ensure that oil and gas companies are taxed at a total rate of 78%, and provide overall stability in the sector; a Deloitte report found that these taxes were split 27% to 51% in 2014, while Norwegian Petroleum cited the ratio at 22% to 56% in June this year.