Norway announces snap oil tax hike

Norway's government announced an increase in oil and gas taxation in August 31, two weeks ahead of parliamentary elections that will see the ruling coalition of Conservative prime minister Erna Solberg face off against the opposition Labour party and its allies.

From 2022, a special tax rate paid by oil and gas companies will be increased to 71.8% from 51% at present, although the overall tax rate of 78% will remain the same, the finance ministry said in a statement. The government also plans to phase out a reimbursement system for exploration costs. The changes, pending approval by parliament, are expected to rake in an extra 7bn kroner ($810mn) in budget revenues from investments made in 2022, the ministry said.

Norway has helped prop up oil companies during the pandemic by providing some 100bn kroner ($10.6bn) in tax relief aimed at encouraging them to continue investing despite the market downturn last year. This relief offered operators incentives for approving new upstream projects before the end of 2022.

Defending its latest decision, the finance ministry said it did not expect the changes to have any impact on oil companies taking decisions on investments. "Investments that are profitable before tax must also be profitable after tax," it said.

Norway's supportive tax regime for exploration helped sustain drilling rates during the downturn, with operators drilling some 31 wildcat and appraisal wells off the country's shore last year, versus 59 in 2019. The Norwegian Petroleum Directorate (NPD) has forecast that a further 40 will be sunk in 2021.

The oil and gas industry typically provides around 20% of Norway's budget receipts, although consecutive governments have been mindful to avoid imposing too much tax on the industry to avoid curtailing development. But climate change is at the centre of the debate ahead of the upcoming elections.