New petroleum tax proposal on hearing

The main features of the proposal are:

The above main points are the only features announced at this time.  A full hearing proposal is expected within a week. We will analyse the proposal in more detail and revert with additional comments once received.

The stated intention of the new proposed rules is to create a cash flow based SPT, which will be neutral on investment decisions from a tax economics perspective. Immediate expensing and annual SPT loss refund will improve liquidity for companies investing in new projects. Over time the nominal taxes will increase compared to the current system.  The discount rate used for calculating NPV effects is important for evaluating the overall result for the industry. The Ministry of Finance and the industry has long disagreed on the correct rate to be used for such purpose. Direct expensing will end this discussion according to the Ministry.

Companies in a pure exploration position will not receive any cash refund for ordinary income tax exceeding the effect of SPT deduction and related SPT loss refund.

A possibility to pledge SPT loss refund claims will mitigate the loss of the current exploration tax loss refund scheme and may provide additional security for financing of development investments.

The hearing proposal and the industry's response will be a matter to be dealt with by the government resulting from the upcoming general election on 13 September 2021. Any final legislation will also be proposed by such government and finally enacted by the newly elected parliament (Storting). Such enactment may not occur until the spring session of 2022. It may be argued that this timeline is too ambitious given the significant system changes proposed.