The so-called North Sea Agreement laid down the future framework for activities in the North Sea. This involved a restructuring of the tax system and 20 per cent state participation in the Sole Concession as from 9 July 2012.
Consequences of the Agreement On 29 September 2003, the Danish state entered into an agreement with A.P. Møller Mærsk regarding a continuation of the Sole Concession until 2042.
The North Sea Agreement entered into force on 1 January 2004 and has a term of almost 40 years. To provide the best possible decision-making basis when concluding the Agreement, the Danish state calculated the consequences of an agreement.
A number of assumptions, for instance regarding oil production, oil prices, investments, etc., were set up in order to calculate the consequences of the Agreement. These assumptions were the cornerstones of the calculations. As the actual development of the activities is difficult to predict, sensitivity analyses were also made by changing the central parameters. Oil production and oil prices are the parameters with the greatest impact on state revenue and the companies’ earnings from the North Sea.
Development since conclusion of the Agreement The development in these parameters since the conclusion of the Agreement, as compared to the assumptions used when negotiating the North Sea Agreement, is outlined below.
Three oil production scenarios were drawn up for the purpose of the calculations, a low, middle and high scenario. Likewise, six price sensitivity scenarios were prepared to supplement the middle scenario in order to provide for the uncertainty associated with the oil price development, including the dollar exchange rate.
This figure depicts a bar chart showing the various parameters compared to the assumptions made in the middle scenario.As appears from the figure, the level of oil production and the dollar exchange rate are lower than assumed in the middle scenario. Gas production is at the level assumed in the middle scenario, whereas the oil price and state revenue are much higher than assumed at the time of concluding the Agreement. In relation to state revenue, this means that the current level of the oil price helps offset the lower-than-assumed production.
This development illustrates very clearly how difficult it is to predict the actual course of events. For the two main parameters, the actual effect on state revenue is opposite. The lower production volume has a negative impact on total earnings, while the higher oil price level has a positive impact.