Tax allowances for developing oil fields introduced in this year’s Finance Bill should help to keep the UK North Sea competitive in attracting investment, it was claimed yesterday.
The comment came from the chairman of Scotland-based oil and gas industry consultant Hannon Westwood.
Charles Westwood said the allowances increased the number of credible opportunities for development of small and challenging fields.
He added: “The (UK) Government has judged it quite correctly in making an intelligent and measured response to issues raised by the industry.
“We think that, although there is still a shortage of bank finance, oil and gas companies are looking at their portfolios and re-evaluating their positions.
“Banks may now see some investments as being more attractive.”
He was speaking after Hannon Westwood issued a report saying the allowances introduced by Chancellor Alistair Darling could stimulate development of up to 45 small discoveries at an oil price of $45 a barrel and up to 157 finds at $60 a barrel.
The allowances target certain categories of undeveloped discovery – small fields, and so-called ultra-heavy oil and ultra-high-pressure/ high-temperature (HPHT) fields – to help stimulate investment in a low-oil-price environment. The firm’s own database on all discovery wells in UK waters has 259 in the small-field category: 235 with estimated reserves from near zero to 20million barrels of oil equivalent (boe), and 24 finds with reserves from 20-26million boe.
It says that overall, the number of projects that might prove attractive in a $60 oil climate is estimated at 157 (139 discoveries of fewer than 20million boe and 18 of fewer than 26million boe).
The tax allowance for fields containing fewer than 26million boe is £75million. For HPHT and heavy-oil fields it is £800million.
These can be offset over time against the supplementary charge payable by firms involved in a field and, once the allowance is exhausted, a field will be taxed at the full North Sea rate.
Mike Tholen, economics director with industry body Oil and Gas UK, said of the report: “This is a useful piece of work and provides an additional insight into the impact on North Sea activity of the changes announced in the last Budget.
“Hannon Westwood highlights that billions of barrels in small fields are still to be developed across the UK continental shelf (UKCS), however, its analysis confirms Oil and Gas UK’s assessment that the new field allowance will only have a limited impact on investment in the UKCS: an additional one or two developments per year.
“This represents a very modest increase in activity and does little to restore the UK’s competitiveness against other, less mature, oil and gas provinces. Hannon Westwood’s study highlights the need for continued dialogue with government on the future of the UK’s fiscal regime to ensure we create an environment which is conducive to maximising the UK’s oil and gas reserves.”