Before any exploration can take place, a production licence must be awarded. Such licenses are normally given on the basis of applications from oil companies during pre-set licensing rounds. The production license provides an exclusive right for exploration, exploration drilling and the production of petroleum within its specified geographical area. Fields in operation apply annually for permits to continue production.
The supply base pattern for exploration activities is decentralised. Plans for the development and operation (PDO) of a field must be approved before development can take place. The plans are approved by the Stortinget or the government, depending on the project's size. As part of the PDO, an impact assessment is carried out. This also discusses regional impacts.
Through the petroleum taxation system and the State's Direct Financial Interest (SDFI), the state receives a substantial portion of the revenues from these ongoing petroleum activities. At the same time, however, tax deductions are granted on the costs associated with petroleum activities. This system therefore implies that, if the oil companies do not make profits, the Norwegian State will not collect revenues. In this way all players in the Norwegian petroleum sector share an interest in ensuring that the production of Norwegian petroleum resources creates the greatest possible value added.
Regional perspectives
The Government is very aware of the regional effects of Norwegian petroleum activity. In the case of the Snøhvit development the decision to go ahead with the project was helped by a tax adjustment for LNG-projects in this region. There are no specific governmental demands as to the landing of petroleum in Norway. In principle the oil companies are free to choose the most economic solutions. However, thus far there has been significant regional impact, and five landing points have been established along the Norwegian coast.
The Action Zone
The North Troms and Finnmark Action Zone was established in 1990. Geo-graphically it consists of Finnmark and the seven municipalities in North Troms. A package of economic measures was established for people and businesses located in the area. The main objective it to make the region attractive to live, work and do business in. The Norwegian Parliament confirmed, in 2004, that the special measures should be continued.
The region is rich in natural resources and opportunities for people and industry. At the same time, the area faces significant demographic challenges. During the 1980s development was increasingly negative.
The three towns of Hammerfest, Alta, and Kirkenes have significant growth potential, but their interiors are dominated by more fragile industries. In the coastal areas fishing-related industries are predominant thus their futures will depend on the developments in respect of fish resources, regulations and markets. A lack of diversity among the industries and thus an inability to adjust to changing conditions represent important structural problems in this zone.
During the existence of the Action Zone a number of modifications to the special economic measures regulating it have taken place. As of 2006 the measures were:
• 0 per cent in social security tax.
• Reduction of student loans, up to 10 per cent of the initial loan, maximum NOK 25 000 a year.
• Exemption from tax on household use of electricity.
• Reduced personal taxes.
• Higher family/children's allowance (Finnmarkstillegget).
• Benefits to pre-school teachers.
The total annual revenue effect of these measures is estimated at NOK 2.6 billion consisting of exemptions to social security tax (1.7 billion), reduced personal taxes (0.6 billion), exemption of electricity tax (0.1 billion), reduction of student loans (0.1 billion), and higher children's allowance (0.1 billion).