Page 5 - Euroil Week 18 2020

EurOil COMMENTARY EurOil
others will join the trend. Brazil, Canada and the US have so far only talked of organic rather than enforced cuts to production.
Implementation
Norway will impose the cuts by adjusting the quantities that operators are allowed to produce under field permits. They will be distributed fairly between oilfields, Bru said, and will not apply to gas and condensate deposits. Therefore there will be no impact on Norwegian gas pro- duction and gas exports, the minister said. As NewsBase reported in late April, though, caps on oil production could well affect gas extraction levels, as they would result in less associated gas being lifted, while on the other hand freeing up more dry gas for export.
Also exempt will be fields bordering other countries such as the Equinor-oper- ated Utgard field that straddles the boundary between the UK and Norwegian waters of the North Sea. Fields that have had problems with resource management, including those at a late stage of their production life, will also be ringfenced.
Norway last restricted its oil supply in 2002, when it enforced a cut to supply of 150,000 bpd for half a year. At the time the country’s produc- tion exceeded 3mn bpd. Two decades ago Nor- way’s oil industry was far less diverse, though, with Equinor, then known as Statoil, and other state firms accounting for a greater share of supply.
The exemption for certain fields struggling with resource management is key, as it will help prevent cases where output restrictions result in an overall loss in recovery. But junior opera- tors, especially those operating single fields, will be hard hit by the cuts, which could seriously impede their ability to recoup costs. Larger firms like Equinor with greater liquidity will fare better.
Fiscal support
Norway has also announced a package of fiscal
measures to support its oil industry, its prized source of budget revenues.
Oil and gas producers will be able to receive deductions from tax faster for investments approved by the end of 2021 and completed no later than 2024. They will also be able to claim back the tax value of losses in 2020 and 2021. These proposals will be submitted to Norway’s parliament in the form of a bill on May 12, and vetted to ensure compliance with EU competi- tion law.
“The Norwegian oil and gas industry and supply industry are now in the midst of a cri- sis unlike anything else we have experienced,” Bru said on April 30. “Field developments and large-scale maintenance projects are the base for much of the activity in the supply industry. The measures we are presenting now are like a shot in the arm, an incentive to carry out more development projects on the Norwegian Conti- nental Shelf [NCS] than would otherwise have been possible.”
The proposals are expected to unlock an extra NOK100bn ($9.7bn) of investment over the next two years, the minister said.
The government also plans to introduce a green restructuring package that provides more funding for research, development and innovation to help the industry reduce its emis- sions footprint. Details will be announced when Oslo unveils a package of measures for exiting COVID-19 lockdowns in late May.
By easing the tax burden, Norway will undoubtedly see some investments go ahead that would otherwise have been shelved or abandoned altogether. But investors will still show reluctance, given the uncertain but gen- erally bearish outlook for oil. The International Energy Agency (IEA) does not expect oil to recover above $50 per barrel until 2022, aver- aging just $33 this year and $45.60 in 2021. Oil markets were already struggling with oversupply even before the COVID-19 pandemic took hold, and record-high storage levels could take years to ease. ™
Week 18 07•May•2020 w w w . N E W S B A S E . c o m P5