The overall objective of Norway’s petroleum policy has always been to provide a framework for the profitable production of oil and gas in the long term. It has also been considered important to ensure that as large as possible share of the value creation accrues to the state, so that it can benefit society as a whole. Oil and gas activities must take place within a sound health, safety and working environment framework, and environmental concerns are to be taken into account throughout the industry. Petroleum activities must also take place in coexistence with other industries.
Norway has established a division of roles and responsibilities between the state and the business sector that provides a good basis for achieving the goals of Norway’s petroleum policy. The authorities regulate the sector by setting a clear and predictable overall framework. The oil companies and other actors in the industry are responsible for operational activities. Because commercial companies are responsible for exploration, development and production, it is essential to give them the right incentives – the decisions that are best for the companies must also be beneficial to society.
The regulatory framework for petroleum activities has therefore been designed to give the best possible balance between the companies’ and the authorities’ interests. This is achieved among other things through taxation policy, through the Petroleum Act and through the authorities’ oversight of resource management.
To ensure that value creation benefits Norwegian society to the greatest possible extent, the tax rate for oil and gas companies is 78 %. The petroleum taxation system is based on ordinary company taxation (currently 22%), but an additional special tax is levied. One key consideration in designing the petroleum taxation system was to ensure that incentives for companies to make investments were maintained. Projects that are profitable for society should also be profitable for the oil companies.
It is therefore the companies that are taxed, not the oil and gas fields. The companies are entitled to deduct all relevant costs from the tax basis. Deductions for investments (depreciation), are designed to prevent the high tax rate from reducing the willingness of companies to invest on the Norwegian shelf. In 2022, the petroleum taxation was changed to a cash-flow based system in the special tax regime, where investments are immediately deductible. To ensure that companies are treated equally regardless of whether or not they are liable to pay tax, there is a system whereby companies can claim reimbursement of the tax value of any losses made in the special tax regime (71.8%).
