TotalFinaElf Requests Grace Period on New Tax

TotalFinaElf has sent a letter to the U.K. government requesting a "grace period" for the new oil tax on firms operating in the British North Sea. "We sent the message last week," Thierry Desmarest, TotalFinaElf's chairman and chief executive, said in a statement. Desmarest didn't provide a length of time he is seeking in the proposed grace period, but said it should apply to "new fields which have started production." Under the proposal by TotalFinaElf, new fields would be liable to the old 30% marginal tax rate, instead of the 40% rate introduced by the Blair government in April. Desmarest could have been considering the Elgin/Franklin natural gas field when he submitted his proposal for a grace period to the U.K. government. Elgin/Franklin, which supplies about 4%-5% of the gas needs for the United Kingdom, was opened in two phases beginning in March 2001. Desmarest said the new tax will "take substantial (investment) funds out of the North Sea, and more than the Government expects." The levy will particularly hurt exploration and development and so-called "brown fields" projects, where new investment could revive or extend the life of a producing field, he said. "Real cash investment is needed to enhance recovery of reserves in the brown field sites, and if exploration funding is reduced, there will be no new developments," he said. TotalFinaElf has exploration and development investments in the U.K. continental shelf worth GBP260 million, Desmarest said, hinting this would decline unless "appropriate amendments (were) considered." "We will first wait for the final decision" on the tax before we review our future projects, Desmarest said.

Michel Conti, managing director of TotalFinaElf's U.K. upstream business, confirmed that the tax has already delayed a decision on whether to develop the West Franklin gas prospect. Plans to develop the nearby Glenelg field next year have been put on hold as Elgin/Franklin's production is meeting current output targets, he added.

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