Alarming evidence has come to light that the Norwegian government allegedly sought to withhold key figures showing that oil and gas exploitation in the Barents Sea could result in massive losses for the state prior to the opening of a new area of the frontier Arctic play for licensing, according to a report.

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The Oslo parliament unanimously approved the opening of the south-east Barents for oil and gas exploration in 2013 based on an official calculation that resources in the area could be worth between Nkr50 billion and Nkr280 billion ($5.4 billion and $30.4 billion), state broadcaster NRK reported.

This calculation, given in a financial assessment in a proposal presented by the government to parliament, was predicated on the assumption of record high oil prices of $120 per barrel at the time being sustained for the next 20 years, before an oil price crash in late 2014.

However, the government was sitting on an updated calculation from 2012 that showed a drop of 30% in oil prices from this level would result in a negative net present value for resources from the area of several billion kroner, making exploration unprofitable, according to the report.

Even with oil prices at $120 per barrel, there was still reportedly a 25% probability of negative returns from oil and gas exploitation in the south-east Barents, while maximum expected returns could be only Nkr50 billion — much lower than the estimate seen by parliament.

Drilling failures

Oil prices have since fallen to their current level of around $40 per barrel, with future projections ranging between $50 and $70 per barrel, while drilling in licences in the south-east Barents awarded under the 23rd licensing round has so far failed to turn up any significant discoveries.

Exploration in Norway benefits from favourable fiscal terms in which oil companies are entitled to a tax refund of 78% of drilling costs, which are thus borne by the taxpayer.

The revised calculation — made by the Norwegian Petroleum Directorate (NPD) in dialogue with the Petroleum & Energy Ministry — was, however, reportedly not disclosed to parliament.

The ministry also requested that it be excluded from the NPD’s resource report for 2013 pending the parliamentary decision, according to internal email communications between the two government bodies revealed by NRK.

In these emails, ministry officials were quoted as saying that a financial valuation given in an impact assessment to parliament “should clearly indicate that we should open” the south-east Barents and, if that was not the case, then “the costs should be taken out”.

In addition, a note from the ministry attached to a draft of the resource report stated “make sure the south-east Barents is not talked down”, causing frustration among NPD officials over an alleged cover-up, according to the NRK report.

These emails have now finally been handed over as evidence to Norway’s Supreme Court in a lawsuit filed by environmental groups Greenpeace and Nature & Youth against the Norwegian state ahead of an appeal hearing scheduled for 4 November.

Evidence delayed

The groups have so far suffered court defeats in the case in which they contend that licence awards in the 23rd round were unlawful as they contravene constitutional law that requires the government to safeguard the environment for future generations, and also run counter to the country’s commitment to cut carbon dioxide emissions under the Paris Agreement on climate change.

The plaintiffs have repeatedly claimed profitability calculations for the south-east Barents were potentially erroneous as these were not based on net present value, indicating potential future earnings, which invalidated parliament’s decision to open the area.

“The ministry withheld updated information, which shows that an oil opening could lead to a significant economic loss for Norway. As a consequence, the parliament opened an area for oil activities on incorrect and outdated facts,” Greenpeace Norway said.

A ministry spokesman was quoted as saying the report with the revised calculation, which had been sent from the NPD to the ministry prior to an earlier court hearing but not disclosed, had not been presented previously due to an administrative “error”.

The communications between the agency and the ministry occurred during the tenure of former oil minister Ola Borten Moe, who told NRK he was not aware of the revised calculation as it was an internal note at the NPD. “Parliament had all relevant information,” he said.

However, Oslo University law professor Hans Petter Graver was quoted as saying the ministry had “led behind the light both parliament and the judicial system, even though it may have been an error”, and that this could represent a breach of regulations for constitutional and legal process.