The oil and gas industry been engaged in detailed discussions with HM Treasury and HMRC since the 2011 Budget regarding a number of projects rendered non-commercial by the increase in the supplementary charge.
The resultant tweaks in the tax code, including an the increase in small field allowance, the creation of a large deepwater oil field allowance and, following today’s announcement, a new large shallow water gas allowance, have mitigated the potential reduction in future investment in the UKCS.
Industry may have expected earlier announcements regarding gas prospects given the commitment made by the Government to respond to the impact on gas when the increase was imposed.
However, this is welcome news for pending prospects and indicates that the Government is willing to react positively when presented with evidence that demonstrates the damaging effect the marginal rate of tax has on the development of large projects.
It should also result in a redoubling of efforts to press for similar incentives to apply to existing fields where incremental projects are at risk without some reduction in tax.
In a week that’s already witnessed two major deals with implications for the North Sea, today’s steps are further evidence of the region’s remaining potential.”
Derek Leith is head of oil and gas taxation at Ernst and Young and the firm’s Aberdeen office managing partner.
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