Fact box 2.1 Measures to increase exploration

Around 2000, the level of exploration on the NCS was low – particularly in mature areas. That contributed to low resource growth.

The government therefore adopted measures and adjusted framework conditions to encourage competition and increase diversity among the companies. Three measures have been particularly important.

• The prequalification system was established so that companies could have their suitability for participation on the NCS evaluated. Great interest has been shown in prequalifying, and a steady stream of companies are still seeking such advance assessment.
  
  
• The awards in predefined areas (APA) scheme, together with adjustments to work programmes, provides companies with opportunities for regular access to exploration acreage and ensures that the NCS is actively investigated. It also facilitates efficient use of oil-company resources and makes sure that relinquished acreage becomes available to players with new ideas. Acreage awarded earlier is thereby also subjected to fresh evaluation.
  
  
• The reimbursement system for exploration costs was introduced to ensure equal treatment of companies whatever their tax position. This lowers the entry threshold for new players and facilitates profitable exploration. Under the system, companies can choose whether they want the tax value (78 per cent) of their exploration costs reimbursed by the government in the following year or deducted from taxable income. Established companies with taxable earnings can deduct exploration costs on a continuous basis and thereby reduce their tax bill. Players without such earnings can have the costs either reimbursed or carried forward with compensation for interest (or have the tax value of losses refunded should they withdraw from the NCS). Small companies which have yet to achieve taxable earnings thereby reduce their tied-up capital and improve cash flow.