Maersk's oil deal to remain untouched until 2043
Government decides against renegotiation of North Sea agreement after exempting the oil company from recently-announced corporate tax reductions
A deal struck in 2003 between the Danish government and oil companies including Maersk will not be altered for another 30 years despite the government's previous calls to re-examine the arrangement.
The agreement was signed between the oil consortium DUC – which includes Maersk, Chevron and Shell – and the previous centre right government in 2003. The current government had indicated it would seek to renegotiate the treatment, which many have criticised as being too generous to the oil industry. But now, Jyllands-Posten has confirmed that the government has dropped its plans and the agreement will stay in place as-is until 2043.
The terms of the original agreement stated that should the government choose to raise the hydrocarbon tax before 2043, it would be obliged to compensate the DUC for any lost earnings as a result. Calls for changes to that agreement had recently gathered momentum, after far-left party Endhedslisten’s calls for a higher share of DUC’s profits through taxation were supported by think-tank Concito.
However, that no longer seems to be the case, after Maersk accepted that it will not benefit from the new reductions in corporate tax announced as part of the government's growth plan. The plan explicitly exempted banks and companies drilling for oil in the North Sea from the reduced corporate tax, which for other businesses will fall from 25 to 22 percent.
“We have agreed to waive a corporate tax cut this time around,” Maersk Oil CEO Jakob Bo Thomason told Børsen financial daily. “But it is important to emphasise that a tax burden on the North Sea has a direct impact on investment and activity maintenance.”
PM Helle Thorning-Schmidt (Socialdemokraterne) insisted that the government “considered the background to the agreed economic conditions in the North Sea Agreement to be balanced and sustainable” during the unveiling the government’s growth plan on Tuesday. Magnus Heunicke, a spokesperson for the Socialdemokraterne, tweeted his satisfaction about the outcome.
“The government has managed to negotiate an agreement with the oil industry, in which [the industry] won’t get a single kroner from the corporate tax reduction,” Heunicke tweeted to Jyllands-Posten reporter Kåre Sørensen. Heunicke said in a subsequent tweet, however, that he would have like to have seen the oil industry taxed more.
Thomasen, on the other hand, welcomed the government’s decision to forego any re-examination of the original agreement.
“It’s crucial for us at this time to get back to work now that the government has given their unconditional support for the North Sea Agreement,” Thomasen told Jyllands-Posten. “We can now concentrate on developing further investment and jobs within our sector.”
According to Concito, the DUC has profited from enormous increases in oil prices since the deal was struck, leading to vastly higher profit margins than most businesses. In 2008, the DUC had a profit margin of 28 percent. The average non-finance-related company has an average after-tax profit margin of two percent.