The new Westminster government has signalled that it is poised to unveil fresh tax breaks for the North Sea oil and gas sector.
Ministers will today move to reassure offshore leaders that they remain committed to securing the industry’s future when they meet for the first time since the Conservatives’ majority government was formed.
New Treasury minister Damian Hinds appeared to admit that the £4billion package of measures outlined by the coalition government at the last Autumn Statement and Budget did not go far enough.
The Exchequer secretary welcomed “encouraging” cost-cutting measures taken by oil and gas firms, and hinted that ministers were preparing to take further action to help the industry as it attempts to recover from the global price slump.
He said: “We will look at how we can expand the definition of expenditure that qualifies for the investment allowance, so more investment can be covered.
“And, working with industry and the new Oil and Gas Authority, we will look further at knocking down barriers to exploration, and how we can improve access to infrastructure.”
Professor Alex Kemp, the leading expert on the industry, welcomed the remarks as “good news”, saying that the priorities highlighted were “highly appropriate”.
Chancellor George Osborne announced at the Budget in March that the government would cut the headline rate of oil and gas tax by 12% and introduce a North Sea-wide tax allowance to reward investment.
The coalition government previously said it would also look at further measures to boost the sector, and Mr Hinds has now reaffirmed the pledge and raised hopes of specific action on North Sea exploration and infrastructure.
He will deliver the message to sector leaders today when he attends the first meeting of the Oil and Gas Industry Fiscal Forum since last month’s election.
The group was established in 2012 to improve relations between the government and industry in the wake of the disastrous 2011 Budget tax raid on producers.
The comments were also made in advance of Chancellor George Osborne’s post-election Budget, planned for July 8.
Callum McCaig, SNP energy spokesman at Westminster and Aberdeen South MP, welcomed the remarks last night.
“I think this sounds like a positive step from the government and I very much look forward to seeing what is presented to the House when it comes to Budget day,” he said.
“We’ve been keen supporters of the oil and gas industry for many years. The two things we’ve been arguing for many years are stability of the fiscal regime and appropriate consultation with the industry, which I hope and expect is ongoing.
“We had a significant commitment in our manifesto on support for the industry, and in particular exploration.
“To ensure this industry has a long-term and bright future, there’s a requirement for support for exploration.”
Former Scottish secretary Alistair Carmichael, the Liberal Democrat MP for Orkney and Shetland, said: “Anything that allows the regulator to be set up as quickly as possible has got to be welcome, as well as anything that assists the industry in tackling the challenges it faces, particularly in the north North Sea, where we need to manage a mature asset.
“These are all welcome and will get nothing but my support.” Prof Kemp, director of the Aberdeen Centre for Research in Energy Economics and Finance, said: “It’s good news that they are thinking about these matters.
“These are measures which are all generally appropriate to the present position within the UK Continental Shelf. With respect to the investment allowance, there’s a case for extending its coverage to include investment in infrastructure because keeping the infrastructure in good health is important so that it’s available to take new field developments and smaller field developments, which are otherwise in danger of being stranded.
“In respect of the investment allowance there’s also a case for extending it to enhanced oil recovery schemes. The idea of giving extra incentives for exploration is highly appropriate.”
Read Damian Hind’s opinion piece here.
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