The Falkland Islands government announced on Monday that it is currently in discussion with Premier Oil on a wide range of issues with the objective of progressing the Sea Lion development towards a successful project sanction.
The official release was in response to an article published in The Times on 13 March with the heading: Premier Oil asks Falklands for tax break to develop field in which the company is struggling to make the project commercially viable because of low crude prices.
FIG denies such a situation and recalls that Falklands' offshore licensing regulations clearly contemplate oil market fluctuations, and thus royalties, and that FIG does not intend to embark on negotiating fiscal policy through the media.
In effect, as identified in the article, the option to reduce royalty is contained within the current Offshore Petroleum Licensing Regulations. This is not a new provision, and it has existed since the regulations were first introduced in 1995.
Royalty payments are levied at a standard rate of 9%, currently approximately US$4.64 per barrel at the prevailing oil price, and vary according to oil price fluctuations.
Stephen Luxton, Director of Mineral Resources, said: “FIG does not intend to embark on negotiating fiscal policy through the media, but to contain speculation, I can confirm that no commitment to reduce royalty has been entered into by FIG.
The purpose of the royalty-based regime is to deliver an early benefit from oil development to the economy and the people of the Falkland Islands. Offshore oil resources belong to the people of the Falkland Islands and as you would expect, whilst unlikely, if any variation is subsequently proposed from the prescribed level then it would be subject to a formal decision by Executive Council”