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March 19, 2014 3:48 pm
The chancellor has extended tax allowances in the North Sea in a change that he said would encourage billions of pounds of extra investment in the UK’s maturing oil and gas industry.
Mr Osborne extended incentives to develop so-called ultra high pressure, high temperature fields that typically demand higher spending to exploit because of the technical difficulties of bringing oil and gas to shore.
The allowances build on previous tax breaks extended by Mr Osborne to brownfield extensions, smaller projects and developments in more demanding and remote waters west of Shetland during the past two years.
The widening of allowances, which followed an unexpected £2bn tax raid made by the chancellor on North Sea operators in the Budget in 2011, is aimed at extending extraction of oil and gas reserves, which is increasingly dependent on economically marginal fields.
The Culzean and Jackdaw fields, operated by Maersk and BG Group respectively, are expected to benefit from the extension of tax allowances on high pressure, high temperature discoveries.
Jakob Thomasen, chief executive of Maersk Oil, welcomed the allowance saying: “If sanctioned, Culzean would represent a multibillion pounds investment.”
The chancellor also said he would “take forward all recommendations” made in the recently published Wood report aimed at maximising recovery of the reserves.
“We will review the whole tax regime to make sure it is fit for the purpose of extracting every drop of oil we can,” said the chancellor.
Malcolm Webb, chief executive of industry body Oil & Gas UK, predicted the allowances could encourage £5bn-£6bn investment in new North Sea projects.
He also welcomed government plans for a general assessment of the fiscal review facing North Sea operators that is expected to report initial conclusions in time for the Autumn Statement.
However, Mr Webb said he remained “perplexed” by government plans to push ahead with plans to change the tax treatment for intra-group charters of offshore rigs and other equipment. Adjustments made in the treatment of offshore chartering could result in £500m being added to operators’ tax bills over the next five years.
He said the Office for Budget Responsibility on Wednesday had yet again revised down the anticipated tax receipts, this time by £3bn, in the coming years.
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“This is a reminder of how precarious the budget of an independent Scotland would be. These further downgrades in the tax receipts would leave independent Scots with a shortfall of £1,000 per person,” he said.
Budget documents point to the OBR revising down anticipated tax revenues from the North Sea by £8bn during the next five years. The watchdog has previously revised down estimates of the UK’s North Sea tax revenues by £21bn for the five years to 2015-16 compared with predictions it made in 2010.
Total UK revenues from oil and gas production slumped to £6.5bn in 2012-13, down 40 per cent from the £11.3bn collected the year before.
The top marginal tax rate levied on the revenues of North Sea operators was held at 81 per cent.
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