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Denmark Aims to Solve North Sea Gas Problems with Maersk

Published in Oil Industry News on Tuesday, 5 April 2016

Graphic for News Item: Denmark Aims to Solve North Sea Gas Problems with Maersk

The Danish government said it would try to find an economically viable solution for gas production in Denmark's part of the North Sea, after A.P. Moller-Maersk (MAERSKb.CO) threatened on Monday to shut down the country's main gas field.

Maersk's oil subsidiary said it will shut the Tyra gas field in October 2018 if it cannot find a solution by the end of this year to make the ageing site profitable in the long term.

Its threat added pressure on the government from energy companies to adjust taxes on oil and gas production. They say the slump in oil prices means investing to extract the remainder of the country's declining reserves is no longer profitable.

The Tyra complex produces around two thirds of Denmark's gas, according to Maersk Oil. But the company said the field was approaching the end of its operational life after more than 30 years of production and due to subsidence of the underground chalk reservoir.

"The government is in a good dialogue with the industry about the future possibilities and we want to find a solution on the problems as quickly as possible," Energy Minister Lars Christian Lilleholt told Reuters.

He said the government was still contemplating a proposal from the industry that investments in the North Sea should be eligible for a tax credit or tax postponement.

The previous government increased taxes on oil and gas in 2013 so that the state now gets around 65 percent of the profits from production.

"It seems pretty obvious that if the taxes are not adjusted, then we will see a scale down," Sydbank analyst Jacob Pedersen said.

Denmark's tax proceeds from the North Sea have fallen gradually from 36 billion Danish crowns (3.8 billion) in 2008.

In December the government said it expected tax revenues from oil and gas of just 4 billion crowns this year, but that was based on an oil price of almost $50 per barrel -- far above the current $38 level for Brent LCOc1.

The Tyra complex is a hub for a number of smaller facilities and more than 90 percent of Denmark's gas -- 60,000 barrels of oil equivalents last year -- is processed through the field.

"We're closing down for safety reasons and not due to the oil and gas prices. But of course we look at the prices when looking at this large, long-term investment," the head of Maersk Oil Denmark, Martin Rune Pedersen, told Reuters.

Last week Danish majority state-owned utility DONG Energy (IPO-DONG.CO) said it had terminated a contract to build an oil and gas platform for its Hejre field, postponing indefinitely the major development offshore Denmark.

Maersk Oil has been mentioned in Danish media as a possible buyer of DONG's 60 percent stake in the Hejre project.

"It makes good sense to see how one can take advantage of existing activities and installations in the area. But we must see what the Herje consortium decides on," Maersk Oil's Pedersen said.

Maersk Oil operates Tyra on behalf of the Danish Underground Consortium (DUC) partnership, owned 31.2 percent by Maersk, 36.8 percent by Shell (RDSa.L), 20 percent by Danish state-owned Nordsofonden and 12 percent by Chevron (CVX.N)

Source: uk.reuters.com

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