Petroleum economist Professor Alex Kemp welcomed chancellor Osborne’s tax package for the oil and gas industry as it will boost producers in the region.
He said that cash flows for all operators in the basin would be “increased to a worthwhile extent” due to the abolition of Petroleum Revenue Tax.
But he said the reduction in Supplementary Charge (SCT) delivered a “mixed message” to the industry as it would reduce the tax incentives for oil and gas firms looking to press ahead with the development of some new North Sea fields, particularly those that were “marginal”.
He added that the lack of reliefs for exploration or development was “something that still needs attention” from the Chancellor.
“The rate of relief when you make your expenditures on exploration or development, he hasn’t helped much there. That remains for another day.
“We will have to come back for that,” said Professor Kemp.
Professor Kemp said the move to cut SCT in half was “complicated”.
“It is more complicated because there is a 62.5% investment allowance against the supplementary charge.
“If you reduce the rate of supplementary charge from 20% to 10%, you reduce automatically the value of the investment allowance,” he said.
“For fields that are moderately attractive at the $60 price, that improves the returns to the investor to a moderate extent, because the reduced tax on the income is worth more than the reduction in the value of the investment relief.
“But there is a lot of marginal fields at $50 that aren’t going to be paying much tax anyway.
“These fields are not necessarily better off.”
But the PRT abolishment will come as a “great relief”, he added.
“Cash flows are increased on all operations to a worthwhile extent.
“That will come as a great relief on all producing fields, some of whom are showing losses.”
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