Statoil has put on hold two oil and gas projects in UK waters worth more than $10bn because of the government’s increased tax on oil production, the Financial Times reports. The Norwegian group said the tax rise, announced by George Osborne, chancellor of the exchequer, in last week’s Budget, was a “substantial setback” to the North Sea oil industry.
“The proposed tax change significantly impacts the economics of these projects.”
It would “pause and reflect” on the future of its Mariner and Bressay fields to the south-east of Shetland in light of the decision, Statoil says in a statement: “The proposed tax change significantly impacts the economics of these projects. These are challenging fields, which were already economically marginal, so we need to assess how this tax increase impacts them and consider how to move forward.”
Statoil says it has been close to awarding engineering and design contracts for the Mariner field but this will now be suspended.
Mariner and Bressay hold several hundred million barrels of recoverable oil and Statoil have said erlier that their development would generate more than $10bn of investment.
Mr. Osborne dismissed suggestions that his £2bn tax grab on the oil industry would hit exploration: “Our expectation is it will not damage investment.”
The chancellor defends his plan to take money from the oil industry to keep down prices at the pump and dismiss warnings from MPs on the House of Commons Treasury committee that the move could cost thousands of jobs in the sector.
“With current oil prices, the prospects are for increased investment,” he says. “It’s still very profitable to invest to exploit these resources.”
Mr. Osborne said taxes on oil groups would decrease if the oil price fell to about $75 a barrel and would be recouped by a reintroduction of the fuel duty “escalator”, which progressively increases fuel duty.
The supplementary tax rate levied on oil and gas production has risen from 20 per cent to 32 per cent. This has increased the effective tax rate to at least 62 per cent, with some fields facing 81 per cent.
Statoil is to meet Treasury officials but Mr Osborne says it pays higher taxes in Norway.
Well…technically, yes. However Statoil is in principle, and practice, run by the Norwegian government who also is the major shareholder. There’s lot’s of hidden subsidicies in the Statoil system, so that issue is almost irrelevant.
- Statoil North Sea Oil firm in pullout over George Osborne’s budget tax (dailymail.co.uk)
- Statoil halts North Sea oil development over windfall tax (guardian.co.uk)
- Oil giant puts £10bn North Sea development on hold after Osborne’s tax raid (dailymail.co.uk)