CH:Calgary oil firms see 'little impact' on North Sea tax cut plan
BY DINA O'MEARA, CALGARY HERALD JUNE 8, 2011 3:05 AM
Canadian oil and gas producers were uninspired by the possibility of new incentives for natural gas production in the North Sea after facing a 12 per cent rate hike on oil production.
Reports from Oslo on Tuesday suggested the British government was considering tweaking the increase after companies suspended projects and threatened to shut down gas fields in protest of the 32 per cent tax instituted in March.
Calgary-based companies such as Nexen Inc., Suncor and Talisman Energy primarily produce crude oil from offshore developments in the North Sea, and would feel little impact from such changes, spokespeople said.
"We are in the process of reviewing our development plans, which have been impacted by the tax, and we may reconsider some of our projects," said Talisman spokeswoman Phoebe Buckland.
"But we aren't going to rush into anything until we've had a chance to speak with the (United Kingdom) government."
A tax break on gas would be minor for the company, which brought in approximately $600 million US of free cash flow from North Sea production last year.
Talisman produced 77,000 barrels of oil equivalent per day from its U.K. offshore operations, approximately 97 per cent from oil and liquids, Buckland said.
Nexen Inc., the second-largest producer in the North Sea and operator of the 200,000-barrel-per-day Buzzard play, said while unwelcome, the tax would not change the company's strategies in the region.
Approximately 44 per cent of Nexen's production comes from the North Sea.
The Calgary-based company recently gave a green light to its Golden Eagle development in the region, pending regulatory and partner approval, which would add 25,500 boe per day net to Nexen by first production in 2014.
"We were somewhat disappointed to see the increase in taxes in the U.K., but to try to put that in perspective, now we need about $90 per barrel to produce the same after-tax cash that in the old tax regime we could do at $75 a barrel," chief executive Marvin Romanow said in an April conference call.
Brent crude, the benchmark for oil produced in the North Sea, closed at $117.03 US on ICE Futures exchange Tuesday.
The commodity reached a high of $126.65 US in April.
Suncor Energy, which acquired its 29.9 per cent interest in Buzzard after acquiring Petro-Canada, viewed the tax increase as "an extreme measure," and called for discussion between industry and the U.K. on the higher duty.
The unexpected rise in tax from 20 per cent was to offset lower fuel duty for drivers in the United Kingdom as gasoline prices surged on high oil prices.
Gas producers said it dealt a disproportionate blow as oil profits were double those of natural gas.
Patrice de Vivies, Total's senior vice-president for northern Europe, told Reuters he and Total's president had recently met Britain's finance minister, George Osborne, to discuss the matter.
"They (the British government) have to come to understand that gas needs to be treated differently than oil, given that oil is twice as expensive as gas," said de Vivies, from a conference in Oslo.
Total said the increased tax could deter the French company from developing smaller fields in the North Sea.
