* Some 10 small oil projects could be put on ice -analyst
* Norway less predictable place to do business -oil firms
* Second change to Norway energy incentives in 5 months
By Gwladys Fouche and Nerijus Adomaitis
OSLO, May 6 A tax hike on Norway's oil and gas
sector will likely lead to only a modest slowdown in activity in
a overheating sector grappling with cost overruns and delays,
industry players said on Monday.
Norway, the world's seventh-biggest oil exporter, announced
on Sunday it would lower the amount energy firms can write down
on their investments to 22 percent of their investment costs
from the special energy tax, down from 30 percent earlier.
The measure is part of a package of tax changes by the
centre-left government to boost the competitiveness of non-oil
industries, struggling with low demand in Europe, while the
energy sector is booming on the back of high crude prices.
While energy firms see their tax bill rise, non-oil firms
will see their corporate tax rate cut to 27 percent from 28
The tax hike for the oil sector will average around 3
billion crowns ($520 million) a year through 2050.
The change may stop companies from developing several small
oil projects and will raise the costs of larger ones, but
otherwise the effects will be limited as activity is booming.
"The industry is still in a very, very generous situation.
It does not have much to complain about," said Oeystein Noreng,
a professor of petroleum economics at the BI Norwegian School of
"By putting a slight damp on the activity, you can hope to
reduce bottlenecks, and to have the costs rising less quickly,
and this could have a general advantage to the Norwegian
Suppliers are under heavy strain now so some breathing room
would be welcome, he argued.
Only last week, engineering firm Aker Solutions
said cost overruns and project delays would affect its
first-quarter results, sending its share plunging over 20
percent in one day.
In the short-term however, the news was not welcome by the
market, with shares in Nordic oil companies such as Statoil
, Det norske and Sweden's Lundin Petroleum
among the losers.
Shares in suppliers such as Kvaerner and Aker
Solutions were also down on the news, while shares of non-oil
companies reponded positively to the cut in the general rate of
SECOND CHANGE THIS YEAR
Oil firms were critical of the tax change. Statoil said on
Monday it made it less attractive to invest in marginal
oilfields made commercial by high crude prices.
Overall some 10 projects could be be put on ice, according
to John Olaisen, an analyst at Oslo-based ABG Sundal Collier,
mostly small oilfields Statoil wanted to develop.
The state-controlled firm and Lundin Petroleum both argued
that the change would make the financial conditions for working
off Norway less predictable and stable - one of the main draws
for investing in the high-tax country.
"It has to raise questions in people's minds from an
investment perspective (over) how predictable and attractive the
Norwegian fiscal regime is, and what this means in terms of
future changes," said Ashley Heppenstall, Lundin's chief
executive, on Monday.
It is a criticism Norwegian governments are very sensitive
to as they want the Nordic country to be considered a reliable
place to do business.
This is the second change in conditions in less than six
months Norway has announced, after a proposal to slash natural
gas transport tariffs for new gas contracts in January. Pipeline
investors risk big losses as a result.
But Oslo has not made changes to its tax system for oil
companies in a decade, during which time crude prices have
multiplied by five.
Shares in Statoil were down 0.73 percent at 1324 GMT, Det
norske's were down 2.18 percent, Lundin's 2.25 percent and Aker
Solutions' 1.37 percent.
(Additional reporting by Henrik Stolen in Oslo and Simon
Johnson in Stockholm, editing by William Hardy)