Copenhagen Economics has conducted a study on the effect of transferring a specific group of oil and gas extraction companies from the presently applied rules (old rules) to a stricter set of rules (new rules) as recently proposed by the Danish Government. The study is commissioned by the private company Bayerngas which is one of the companies that will be affected by the announced reform.

The Danish Government has announced that this transfer will create equal terms for all companies operating in the North Sea. In contrast to this, we find that the transition to the new rules will affect companies very differently.

The impact on total taxes for a particular company depends very much on the timing of the transition in relation to the current phase of each project. If the transition takes place at the late stages of the production phase, the new rules could potentially lead to a reduction of taxation. But if transition takes place in the investment phase prior to production, total taxes could increase by as much as 36%.  

The origin of the new rules is the so-called North Sea agreement of 2003 which was entered by the Danish Government and the Danish Underground Consortium (DUC). The new rules presently apply to DUC as well as other field concessions from 2004 and onwards. The group of companies for which the old rules apply are those operating on field concessions prior to 2004, which the government chose to exempt in 2003.

Download the full report (in Danish)

For further information please contact Economist Jens Sand Kirk