Monday, 07 November 2011 00:00
 |
| Norwegian Oil and Energy Minister Ola Borten Moe (2nd L) visits the Troll A-platform in the North Sea on October 28, 2011. Photo: Steinar Schjetne, Scanpix Norway, AFP. |
In an address detailing Norway's success capitalizing on its offshore oil and gas resources – including creating a 21-year-old investment fund worth $600 billion and an oil company with worldwide operations – the country's energy minister said a stable tax regime for producers has been critical.
"If you are to invest billions and billions of dollars, you need to know the system won't change overnight," said Ola Borten Moe, Norway's Minister of Petroleum and Energy. "So we take great pride in the fact that we don't change the system every now and then."
Comparing oil taxes
The question of whether reducing oil taxes would lead to more development is a looming debate in Alaska. Critics of the state's current system, called Alaska's Clear and Equitable Share, established in 2007, argue that it hinders investment.
Norway's tax on oil and gas companies is actually higher than Alaska's. With North Slope, Alaska crude costing about $113 per barrel, the state's progressive rate runs about 57 percent today. Add on a federal tax rate of about 15 percent, and the total tax on companies is 72 percent.
Norway taxes 78 percent of the oil and gas companies' profits, Moe told a Friday afternoon audience at the Alaska World Affairs Council meeting in Anchorage. But the country offers generous deductions that can be quickly recouped on all investments.
Despite its "fairly high" rate, Norway has seen 150 oil and gas discoveries since 2000, hosts several of the world's largest oil companies and appears ready to capitalize on another major boom after the recent discovery of what may be one of the country's largest oil fields, he said.
One reason companies continue to invest is that they enjoy "long-term trust" that's just as important as the level of taxation, Moe said.
"We are a reliable partner," said Moe, 35, who wanted to visit Alaska after a recent swing through Canada. "They know what they get when they come to Norway and they know what they don't get when they come to Norway. It's a fair deal."
Exploration companies in Norway are moving farther and farther afield in their search for oil, approaching harsher climates that more closely resemble Alaska's brutal Arctic, he said. He hopes to see how Alaska strives to protect its environment while fostering production.
The Norwegian experience
Last Saturday, Moe visited the North Slope fields. He's already met with officials from the state Department of Natural Resources, the Bureau of Ocean Energy Management and other agencies. Next week, he's headed to Washington, D.C. to meet with U.S. Energy and Interior secretaries Steven Chu and Ken Salazar, his American counterparts. Moe touched on the similarities between Alaska and Norway, but there are big differences, too.
• Norway, a country of 5 million, allows only offshore development, but unlike Alaska, it lacks sea ice because of a warm sea current.
• Norway's offshore oil fields are far closer to large international markets.
Moe touched on a variety of other topics, noting that the United Nation's Law of the Sea treaty, which the U.S. has refused to ratify, provides a critical framework to settle disputes over undersea resources. It recently helped resolve a longstanding argument over seafloor territory between Russia and Norway, with both countries agreeing to a treaty that gives them the chance to share the wealth of potential deposits.
"The treaty (with Russia) creates new opportunities" in areas that have so far been closed to development, he said.
The sovereign wealth fund
Moe also touched on the riches Norway has received from its oil and gas investments, models that some legislators will likely consider as they ponder an in-state gasline.
Norway's sovereign wealth fund, a pool of money launched in 1990, is one of the largest in the world at about $600 billion today – nearly 16 times bigger than Alaska's Permanent Fund. Unlike Alaska, however, the fund doesn't provide direct dividends to citizens. Instead, 4 percent – or some $24 billion – is used pay for the annual cost of government services.
Alaska's Permanent Fund, established in 1976, has $37 billion.
The country is the majority owner in Statoil, one of the world's largest producers of crude oil. Founded in 1972 a year after oil began flowing off Norway's coast, the firm operates in every oil province in the world.
Norway invests in every major oil and gas development off its coast, sometimes heavily. But it's never involved in operating the fields.
Below are Moe's answers to audience questions submitted Friday.
Q: Do you have foreign labor that comes in and works in your country? Do you know the percentage of that?
Moe: We were very dependent in the beginning (1969) on American companies to help us develop our continental shelf. They provided the expertise, the capital and the knowledge to do so, but we had a policy to capitalize on that competence ourselves, so we have been able to build a complete value chain within the oil and gas industry, from the supply industry and all the way up to big oil companies. So what used to be our national oil company, Statoil, is operating on a global scale, in all provinces. Today, the Norwegian continental shelf is an open continental shelf, so Norwegian industry needs to compete on commercial terms with the global industry, so (contracts go to businesses other than Norwegian businesses.)
Q. Let's assume that the Norwegian government decides to open a new area for licensing, how long will you expect, from the time you make a decision to issue the first license? And from that point, how long do you expect before the first well is drilled in that new license area?
Moe: When we have had parliament to open up new acreages, this could go quite fast. Then we put the acreages up for (application), the oil companies apply, and then we give oil companies what they apply for, well sometimes we do, sometimes we do not. They need to show expertise and deliver on a number of issues, and when the final license to discover and explore is given, it's up to the oil company to put the drill into the continental shelf. This process could be done in a matter of just a few years.
==
Q. Oil offshore, oil development and exploration has been somewhat controversial here. I gather from what you said that the risks may be greater here, but I'm interested in your spill record and any comparisons you can make about the difficulty of risks with offshore development here versus in Norway?
Moe: We have had a series of serious accidents on the Norwegian continental shelf. (A well) exploded around 1980. We had Red Adair flown in from Texas. Is he a familiar name here? He came with a private plane and his Stetson, cowboy boots and cigar and he did put out the fire very well, so it was a big success. At that same time, we had a very large accident, a living facility offshore tipped and almost 200 workers died. Those two accidents made the focus in Norwegian oil and gas activity shift toward safety and environmental issues, so today, we have very strict and firm regulations in all the parts of the value chain. We take great pride into this system and we have not had any serious incidents since that. I do think we ought to be humble, because there is always a risk. Our job is to try to reduce this risk as much possible. And we need to be humble in the way that we always have something to learn. There's always new development, new technology. There are always new things to put into the broad picture. And we try to have a regulatory framework that is dynamic.
When it comes to offshore, onshore, Alaska is not my field of expertise, but what I can say about Norway is the feeling (there) is strictly the opposite. (Oil and gas development) is more controversial the closer you get to land. In Norway, it's almost fair to say the further away from land you are, the less controversial the field developments are, and if I sense your question right, this would be strictly the opposite notion here in Alaska.
==
Q. You mentioned Gassco owns and builds your gas pipeline. Is that a government entity or the private sector?
Moe: The Norwegian government controls more than half of it directly or indirectly. The issue with Gassco is to provide cost-effective infrastructure for oil and gas development. The whole point is the profits ought to be on the natural resources, not on the infrastructure.
==
Q. You spoke earlier of a decision by the Norwegian government to invest up to $10 billion in the continued development of the Echo Fisk field. I'd like, if you could speak a little about how that decision affects private investment. Does it attract it or not?
Moe: This is (actually) private investment, but they are approved by our parliament. In our system, the government in Norway, we need to approve all new large investments, and all new large projects, so the state also has a cost-profit analysis on every field, and we might even have an opinion on how they are conducted, so if two companies, with two new fields near each other decide to build two platforms, and we think it's cheaper to build one platform, well, we ask them to build one platform and they need to build one platform because this is to greater benefit to the society. Because of the high government take, it is actually the people of Norway who will pay the price for too-high costs and ineffective solutions.
==
Q. I was part of a recent delegation that visited Norway and we toured your facilities. One thing that does relate between your nation and ours is the oil tax debate. Norway taxes oil higher than Alaska's. You consistently come in at a price-per-barrel level of taxing higher than we do, and we're debating now on whether to lower oil taxes. And I'm wondering if you're having that debate in Norway and if you can say what the result of that debate has been.
Moe: The tax on oil and gas is fairly high. We have three elements of securing that. The incomes are to the benefit of the people... . The most important is that we tax all the income of the oil and gas companies and in addition, the government holds a share of every big license ... that is provided for large companies, so with big national oil companies, Shell might hold 30 percent, British Petroleum might hold 30 percent, and the Norwegian government might hold 40 percent. We never operate (these) resources, we just own them. And we give our part of the costs. We need to pay for research, for development, but in the end it will be another source of direct income from natural resources on the Norwegian continental shelf. And the last source is the shares we hold in Statoil, one of the large players. (It) used to be an all-national oil company operating only on the Norwegian continental shelf and now it's at the Oslo stock exchange. We hold two-thirds of the stocks and that company operates globally. Marginal tax on oil and gas is 78 percent, but it also (is) a system that gives companies great possibilities to deduct. All expenses are deductible, and all investments it's possible to deduct in a fairly short amount of time. So even if the level is high, it is still (worth) investing and all the international large players are present at the Norwegian continental shelf today. Many of them invest, like in Echo Fisk, where they invested $10 billion this year, and they still make heaps of money. Just as important as the level of taxation is the fact that you need long-term trust. If you are to invest billions and billions of dollars, you need to know the system won't change overnight. So we take great pride in the fact that we don't change the system every now and then. We are a reliable partner. They know what they get when they come to Norway and they know what they don't get when they come to Norway. It's a fair deal.
Originally posted November 5, 2011