Tax measures introduced since the UK Government’s £10billion raid on the oil and gas industry have helped to restore confidence in the North Sea, according to an expert.
Derek Leith, Ernst and Young’s head of oil and gas tax and managing partner at its Aberdeen office, said that, while other sectors were still struggling to come to terms with the financial crisis, the energy sector had continued to perform strongly.
He added: “Signs suggest the growth that has been enjoyed will persist.
“Certainly, the fiscal policies adopted by the UK Government since the misguided tax increase of 2011 have gone some way to underpinning renewed confidence in the UK continental shelf (UKCS).”
Mr Leith said the importance of two measures introduced in the past two years – a systematic review of prospects made uncommercial by the tax rise and greater certainty on decommissioning relief – “cannot be overestimated”, adding that the first initiative led to several fiscal changes, including doubling the field allowances for small fields, new allowances for deepwater oil fields and shallow gas fields and support for incremental projects on existing fields.
Mr Leith said: “The last measure is especially noteworthy as it addresses a long-standing issue and has already resulted in new investment announcements by both EnQuest and Talisman, with more expected to follow.”
The tax expert said the work done on decommissioning would be even more important however, because uncertainty over financial responsibility had held back deals in the North Sea. He said: “While discussions are ongoing, the industry remains confident that changes outlined in the Finance Act 2012, such as the creation of decommissioning relief deeds, will result in the sector being in a position to move to post-tax security arrangements. Analysis by Oil and Gas UK predicts that this change alone will give rise to additional investment of approximately £48billion.
“Engaging issues such as exploration activity and remaining recoverable assets will go a long way in determining the continued health of the region, but successfully resolving those surrounding the tax regime will bode well for the future.”
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