A large proportion of Statoil's total value creation goes to the authorities in the form of direct and indirect taxes.
Direct and indirect taxes
In 2007, the StatoilHydro group paid NOK 102.4 billion in tax on income and NOK 29.5 billion in indirect taxes. Direct and indirect taxes paid in Norway amounted to NOK 103.3 billion. Direct and indirect taxes paid outside Norway totalled NOK 28.6 billion.
In Norway, the oil companies pay income tax in two instalments. The first instalment falls due on 1 October in the income year and the second on 1 April the year after. This means that tax payable for a given year is not directly comparable with the tax paid in the same year. The tax expense consists of payable and deferred tax, and it is calculated on the basis of the profit before tax in the accounts.
StatoilHydro's profit before tax in 2007 was NOK 132.0 billion in Norway and NOK 14.8 billion in other countries. The tax expense was NOK 99.9 billion in Norway and NOK 6.6 billion in other countries.
As our investments in other countries generate production and current revenues, taxes paid to the authorities in these countries will also increase. Direct and indirect taxes will not normally accure during the investment phase. Since a long time elapses from a discovery until production starts up, there will be many countries in the list of activities in which we have investments but in which we do not yet pay taxes.
Production sharing agreements (PSAs)
Under production sharing agreements, the partners first receive petroleum worth an amount corresponding to their costs and investments in accordance with rules specified in each individual agreement (Cost Oil). Of the remaining production (Profit Oil), the partners receive a proportion of the produced petroleum, while the host country gets the rest.
The division between the partners and the host country is stipulated in the production sharing agreement. The value of the petroleum that is retained by host countries is estimated to be NOK 13.3 billion for 2007, and the countries involved are primarily Algeria, Azerbaijan, Angola and Libya.
Signature bonus
The authorities in some host countries demand payment in advance of exploration activities for the rights to develop an exploration area. This type of payment is called a signature bonus. The size of the signature bonus is based on the exploration licence's presumed recovery potential and value, and the market's interest in the rights. In 2007, StatoilHydro paid USD 14.5 million in signature bonuses divided between 2 countries and 4 licences.
In 2007, StatoilHydro paid 8 MUSD in signature bonuses upon signing contracts on exploration licenses for deepwater blocks 9 and 10 in Egypt (4 MUSD for each block). StatoilHydro is the operator and has 80% share in both blocks, Sonatrach International Petroleum & Production (Sipex), a wholly owned subsidiary of Algeria's national oil and gas company Sonatrach, has 20% share in both blocks.
StatoilHydro has also paid in signature bonuses 4 MUSD and 2,5 MUSD upon signing contracts on two deepwater exploration blocks Kuma and Karama in Indonesia. StatoilHydro's share in the Kuma block is 40% while operator ConocoPhillips has 60 per cent. StatoilHydro is the operator with a 51 per cent share in Karama block and Pertamina, Indonesia's national oil and gas company, holds 49 per cent.
In 2007, StatoilHydro participated in the 9th Brazilian Bid Round and, together with Anadarko Petroleum, successfully bid for two blocks in the Campos Basin. Pending the award by the government, StatoilHydro will have a 50 per cent interest in blocks C-M-529 and C-M-530. It is expected that StatoilHydro will pay signature bonuses for these two blocks in 2008 upon official award from the government.
