Many North Sea oil and gas companies were left disappointed by yesterday’s long-awaited tax changes.
One industry leader said that the UK Government could have gone much further to stimulate offshore activity.
Subsea UK chief executive Alistair Birnie said: “The fact that the chancellor has introduced a package of measures relating to oil and gas signals the government’s improved understanding and appreciation of the issues facing this highly-strategic sector in our economy.
“This will be welcomed by the industry as a step in the right direction. However, it is not a radical enough step that will immediately start to stimulate activity.” The tax changes will include a new field allowance for certain types of discoveries.
Industry body Oil & Gas UK welcomed the chancellor’s announcement of incentives to stimulate investment in small and challenging projects on the UK Continental Shelf, but added that – to maximise the recovery of the nation’s oil and gas – urgent measures to help existing fields were also needed.
Chief executive Malcolm Webb said: “The measures announced today are a positive step for those companies trying to develop small and challenging fields in this mature, high-cost province.
“However, we now need to direct our attention to sustaining and promoting investment in and around many of our older fields to prolong their lives, to stimulating exploration activity and to opening up the frontier areas west of Shetland and in that regard, we welcome the government’s offer of a continued dialogue.”
But he added: “We must not forget that a number of small companies involved in exploration, the ‘lifeblood of the industry’, are suffering severely from the lack of access to equity markets and we regret that the chancellor did not act on our recommendations to improve funding of this crucial activity.”
Derek Leith, head of tax for Ernst and Young in Scotland, said: “With investment in the UK Continental Shelf having been severely dented by the impact of falling oil prices and the recession, it was important to find a compromise between the need to stimulate the economy and the need to raise revenue.
“As such, the measures announced today by the chancellor will largely be welcomed by the industry. But whether or not they have any tangible impact on existing producing fields where investment is falling most rapidly remains to be seen.
“The introduction of a new field allowance, which ensures that a measure of future income from new, smaller, or more technically-difficult fields is exempt from supplementary charge, may be helpful in ensuring certain projects are sanctioned.
“However, the relief only kicks in once the field is successfully developed and hydrocarbon production has commenced, which means the commercial risk remains very firmly with the investor. Moreover, the relief itself adds further complexities to an already complicated fiscal regime on the UK continental shelf.
“As it will probably be awarded in varying degrees to different projects, it flies in the face of a principled approach to taxation in the North Sea, which is aimed at simplification and placing projects on an equal basis from a tax perspective.”
Martin Findlay, tax partner for KPMG in Aberdeen, said: “Let’s be clear, the North Sea needed the chancellor to ease the increasing pressure it faces from an unattractive tax environment, and while his announcement on the development of smaller fields will be good news for some, most will argue that it hasn’t gone far enough.”
Scottish Council for Development and Industry chief executive Lesley Sawers said: “The measures are a step in the right direction, but are probably not enough to encourage significant levels of new investment.”
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