The Norwegian Oil and Gas Association, the peak industry group which represents the major producers offshore Norway, said Thursday a proposed tax being considered by the government could led to a decline in production and urged it to rethink its position.
The center-left coalition government of Prime Minister Jens Stoltenberg, which is facing a national election in September, has proposed a reduction in a tax break on new energy projects to 5% from 7.5%.
That has led to a storm of protest from the industry including Statoil, the 67% Norwegian state-owned group which is operator of the Johan Sverdrup discovery scheduled to come onstream in late 2018 which was has estimated recoverable reserves of up to 3.3 billion barrels of oil.
Statoil has calculated that the proposed change would reduce tax deductions on the Norwegian continental shelf by NOK38 million for every NOK1 billion ($172 million) invested.
"The government's proposal for changes to the petroleum tax system looks like a rush job and could have consequences nobody wants," association director general Gro Braekken said in a statement.
The association said it met the standing committee on finance in the Norwegian parliament on Thursday for a consultation on changes to the tax system for the petroleum industry.
Norwegian Oil and Gas urged the parliament to send the proposal back to the government for thorough reassessment.
"The government's proposal would particularly affect marginal field developments, improved recovery and projects which are time-critical for using existing infrastructure," said Braekken.
The Norwegian Oil and Gas Association said it emphasized to the committee that the proposed changes would lead to earlier shutdown of production and lower recovery factors on both new and existing fields.
"The direct consequences of the government's proposal are reduced output of oil and gas from the Norwegian continental shelf (NCS), lower tax revenues for the Norwegian community and fewer contracts for mainland Norwegian industry," Braekken said.
The association added that because of the transitional arrangements incorporated in the government's scheme, the proposal would take effect in practice from 2017 and beyond. It said the economic position in five, 10 or 15 years time was not certain and liable to change.
"Does the government really want to depress activity in the petroleum industry in 2017, 2030 or 2035?," Braekken said.
The association said the proposed changes would weaken the competitiveness of the NCS, which had been regarded as competitive despite possessing one of the toughest tax regimes in an international context.
It said this was due to the predictability of operating parameters and because of political and economic stability.
But the proposed tax changes had introduced uncertainty, the association said, asking for parliament to be given more time to study it.
Norway, one of the world's 10 big crude producers, has seen its position steadily eroded from a decade or so ago when it produced well over 3 million b/d because of the steady depletion of its mature oil fields. Current production is around half the peak level and falling.
Crude production by Norway is expected to decline 4% in 2013 to 1.47 million barrels a day, compared with output in 2012 of 1.53 million b/d, according to Norwegian Petroleum Directorate forecasts.
NPD officials say major new developments such as Johan Sverrup won't arrest the immediate downward trend, but they have led to record current investment levels offshore Norway and a reinvigoration in the industry.
