UK oil firms look to Norway after tax hike

June 13, 2011 | Budget & Investment, North Sea & Western Europe

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Britain’s North Sea is set to lose out on investment as oil firms switch their attention to Norway in the wake of an unexpected tax hike in the UK, said Lloyds Bank’s global head of oil and gas.

“In terms of new production that we’re looking at financing, it is moving toward Norway and away from the UK,” Andrew Moorfield, global head of oil and gas at Lloyds Bank, said on Monday at the Reuters Global Energy and Climate Summit.

Moorfield identified fiscal instability as one of the key risks to commodities going forward, noting that political risk was generally associated with emerging markets but the recent UK tax hike showed it could materialize anywhere.

“Egypt has kept production throughout its recent turmoil and has actually shown tax stability, compare and contrast to the North Sea,” he said.

Lloyds, which Moorfield said is the biggest lender in the North Sea with a portfolio worth billions of pounds, has seen its pipeline of transactions move toward Norway over the three months since Britain raised a supplementary tax on oil and gas producers.

“The biggest leading indicator is my pipeline of deals and the pipeline has definitely moved. There will be more activity in the Norwegian North Sea and that is going to be at the expense of the Scottish North Sea,” he said.

The surprise tax hike in March provoked outcry among UK oil and gas producers.

British utility Centrica shut one gas field, saying the rise would make it unprofitable to run, and echoed a decision by Norway’s Statoil to put some developments on hold.

“Norway offers that wonderful thing that oil companies look for, which is fiscal stability,” said Moorfield.

Owners of marginal oilfields and gas producers will be the main losers from the tax hike, he said, while companies with large tax allowances, such as Premier Oil, will benefit.

“When exploration and production in the North Sea is a function of a company’s tax base, that’s simply not a long term viable solution,” Moorfield said.