Facts about DONG Energy's tax payments

In a documentary on the Danish radio programme P1 which was sent yesterday afternoon, they tried to turn it into a story that in recent years, DONG Energy has not paid tax on its oil and gas activities in the Danish part of the North Sea. However, there is a simple explanation: In recent years, DONG Energy has made massive investments in new production facilities, and these investments are tax-deductible because the Danish society wants to encourage new investments, which can result in future high tax revenues. At the same time, the group as a whole has presented a loss on the bottom line in 2012 and 2013 and therefore, we have not paid corporation tax paid these years.
In the documentary, focus is on DONG Energy not paying tax on the production of oil and gas on the Danish continental shelf. Furthermore, it is suggested in the documentary that DONG Energy has chosen a more expensive extension of the Hejre oil field than necessary to achieve larger tax deductions, and that tax speculation is the reason why DONG Energy has a company registered on the Cayman Islands.

The documentary gives rise to a number of misunderstandings about DONG Energy's tax payments. Therefore, DONG Energy would like to state the following facts:

About tax payments
In the past eight years, DONG Energy has invested DKK 11 billion in a continued extension of the oil and gas production in the North Sea. When taking our partners into account too, the investment is even more significant. In the coming years, these investments will result in increased earnings for the company and consequently increased tax payments to the Danish state, the creation of more jobs and an increase in Denmark's self-sufficiency of oil and gas.

Marianne Wiinholt, CFO in DONG Energy, said:
"In order to encourage companies to invest in new production facilities in the Danish part of the North Sea, the Danish state offers a tax deduction on the hydrocarbon tax when investments are made. Once production begins, and the deduction has been used, the state will receive increased tax income both through income tax and hydrocarbon tax. In recent years, DONG Energy has invested significantly in the Danish part of the North Sea and therefore, we've received correspondingly high deductions. At the same time, we've also produced less in the Danish part of the North Sea in recent years, among other things as a result of technical problems, and therefore, our earnings have been lower and the taxable amount has been smaller. Concurrently with the new investments leading to increased production, increased tax payments will be a natural consequence."

As the DONG Energy Group as a whole has presented a deficit on the bottom line in both 2012 and 2013, it has also meant that we have not paid corporation tax during these years.

About the extension of the Hejre field
In 2012, DONG Energy together with our partner in the Hejre field, Bayerngas, decided to invest approximately DKK 12 billion in the field in order to retrieve the 170 million barrels of oil that we believe the field contains. Already in 2010, it was clear that if necessary, the production from Hejre was to take place from an independent production platform rather than by connecting to the existing Harald platform operated by Maersk Oil.

Flemming Horn, Country Manager for DONG Energy's oil and gas business in Denmark, said:
"Together with our partner, we decided to build an independent production platform after having carried out thorough investigations, entering into a dialogue with Maersk Oil and other oil companies and obtaining approval from the Danish Energy Agency. Among the extension options examined, we chose the solution which will create the largest value for our owners, the least possible technical complexity and the fewest risks during the lifetime of the entire field. Overall, the chosen solution will result in more income to the Danish Treasury, not less. Therefore, I can dismiss the claim that tax speculation is the reason why we chose an independent platform."

About the Cayman Islands company
In 2007, DONG Energy acquired ConocoPhillips' Danish business (COP Denmark). COP Denmark was registered on the Cayman Islands and had an associated Danish branch. Immediately after DONG Energy's acquisition of COP Danmark, the management of the company was registered in Denmark, which then became the registered office for the company in terms of tax. Simultaneously, the company's exploration licences, including the Hejre licence, were transferred to DONG Energy's Danish oil and gas business. Since then, there has been no activities in the company from the Cayman Islands.

Marianne Wiinholt, CFO in DONG Energy, said:
"There are no activities in the company on the Cayman Islands, and we're about to wind up the company, which we took over in connection with the acquisition of COP Danmark. DONG Energy has had no tax advantages in connection with the ownership of the company, and we can dismiss entirely that we have tried to reduce our tax payments with this acquisition." 

For the past eight years, DONG Energy has paid approx DKK 5 billion in taxes and duties to the Danish state, and the duties are constituted by pipeline and dispensation fees from the company's oil production. Furthermore, DONG Energy has paid a dividend of approximately DKK 9,5 billion to its shareholders; the Danish state being the major shareholder.

DONG Energy has published more information about tax contributions on dongenergy.com.
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