Will Norway make profits from Arctic oil?

Goliat is a floating, production, storage and off-loading unit (FPSO), the only operative oil field in the Norwegian sector of the Barents Sea. (Thomas Nilsen/The Independent Barents Observer)
Controversies about Norway’s oil-drillings off the coast of Finnmark continue as Minister of Petroleum and Energy, Terje Søviknes, this week failed to answer questions about when the country will get a net cash flow from the Goliat oil field.

Answering a question from Parliament Member Lars Haltbrekken, Minister Søviknes said «Only after the end of production will the owners of a field be able to give the final answer to questions such as profitability of the development as a whole, the profitability for each owner-company and the overall tax effects a field has created for current owners and historic owners.»

Søviknes pointed to estimates by ENI, the operator of Goliat, expecting that the company’s income will be larger than investments – and operating costs from 2022.

78% exploration tax cut

For the state, however, the net cash flow looks different. Norway subsidizes all petroleum companies by allowing them to take off 78% from their exploration costs and deduct this from their income tax. This is done to facilitate for cheaper and more attractive exploration activities.

Goliat started operations in 2015 after a two-year costly delay and since then production has been on-off-on-off following several incidents and safety notifications from the Norwegian Petroleum watchdog. In September, production was halted for planned maintenance. Production was relaunched on October 3rd, but only a few days after the oil pumps started again, on October 5th, the Petroleum Safety Authority ordered a shut down of all production after an audit of the electrical safety on board discovered threat of ignition related to electric motors.

Norwegian business daily Dagens Næringsliv on Wednesday published a list of 53 reported «unwanted incidents» at the Goliat platform since January 1st 2016. During the first year of production, Goliat was shut down five times. Last incident was on Sunday, when the gas alarm was triggered on board and the crew prepared evacuation by entering the lifeboats.

No production means delayed income, for ENI and for the Norwegian Government.

Member of Parliament, Lars Haltbrekken. (Thomas Nilsen/The Independent Barents Observer)

Parliament Member Lars Haltbrekken says to the Barents Observer that there are big doubts about if the field ever will make net profit for Norway.

«The Minister of Petroleum and Energy is still not answering the question about when the state will earn money on Goliat,» a field Haltbrekken names «a climate-bomb.»

«We fear Søviknes’ evasion is because the answer is that the state never will earn money,» Lars Haltbrekken says.

He calls on a change in Norway’s current taxation policies for oil exploration on the continental shelf.

«The favorable sponsorship of Arctic oil exploration through the current tax regime should be changed. Today, the state takes most of the risk,» Haltbrekken argues.

Enormous Barents Sea subsidies

With 78% of the costs covered by the government in tax refund, the environmental group WWF has calculated on the cost for the Government to continue exploration of the Arctic continental shelf north of mainland Norway.

An average test drill on the Norwegian continental shelf had a price of 600 million Norwegian kroner (€68 million) in 2013 of which 500 million kroner (€57 million) then are subsidised by the state.

With five test-drills at each license, the state subsidies are then 2,3 million kroner (€261 million), which means a total subsidy of the coming Barents Sea oil drilling with 126 billion kroner (€14,3 billion), according to calculations made by WWF Norway.

Norwegian newspaper Finansavisen in August reported that oil companies so far have spent 39 billion kroner (€4,1 billion) on seismic research and explorations in the Barents Sea between 1980 and 2016. For 2017, another 8 billion kroner of exploration costs will be added to that sum, according to the newspaper.

Climate changes

Lars Haltbrekken says Norway should not add more new oil fields in Arctic waters, pointing to Statoil’s Johan Castberg, a field located north of Goliat in the Barents Sea.

«Johan Castberg will cause huge emission of climate gas to the atmosphere, that alone is an argument not to develop the field. Climate changes are so dramatic that we can not open new fields on the Norwegian shelf. The development of Goliat also shows that it is something completely different to develop a field in the Barents Sea than at other places on the Norwegian shelf,» Haltbrekken says.

In September, the Barents Observer reported that Statoil had found new solutions allowing for realising the Johan Castberg project, mulling a €6,5 billion investment into the field development.

Related stories from around the North:

Canada: Arctic offshore drilling too dangerous: Trudeau, Radio Canada International

Finland: U.S. pullout from Paris climate pact condemned by Finnish leaders, Yle News

Germany: Cheap oil from the Arctic? Fake news, says climate economist Kemfert, blog by Irene Quaile, Deutsche Welle

Norway: Norway’s oil fund reaches $1 trillion, The Independent Barents Observer

Russia: Big dig in Kola Bay as Novatek takes new steps in Arctic gas project, The Independent Barents Observer

Sweden: Sweden’s climate minister : U.S. withdrawal from Paris sends a bad signal, Radio Sweden

United States: Oil & gas company says Alaska’s limited tax-credit payments thwarting drilling plans, Alaska Dispatch News

Thomas Nilsen, The Independent Barents Observer

For more news from the Barents region visit The Independent Barents Observer.

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