A ground-breaking new tax-break intended to revitalise the North Sea has moved closer to being implemented.
The UK Government published draft legislation for the introduction of transferable tax history (TTH) for the oil and gas industry.
Westminster said TTH would be available for all North Sea licence transfers approved by the Oil and Gas Authority on or after November 1, 2018.
Industry experts believe letting firms transfer tax credits would attract fresh investment to the basin and prolong production from mature fields.
Oil companies build up credits on the taxes they pay during the production life of a field. They can then use those credits to offset decommissioning costs once the well runs dry.
But under the current regime, those tax credits cannot be transferred from the asset owner to the prospective buyer.
The system has made it difficult for deals to be struck between oil majors looking to sell non-core assets and smaller, aspiring firms who are keen to beef up their portfolios, but do not want to be faced with a hefty decommissioning bill.
In the Budget in November 2017, the UK Government agreed to introduce TTH for oil and gas.
Mike Tholen, upstream policy director at Oil and Gas UK, said: “The publication of draft legislation for Transferable Tax History is greatly welcomed by the industry as it’s an additional tool in the deal toolkit, with the potential for bringing new investment to the basin.
“TTH will help increase recovery from existing fields and encourage fresh investment which will both help generate activity for our hard-pressed supply chain. It will also help extend the lives of many mature fields and postpone decommissioning.
“Adopting this measure makes it clear that the Treasury recognises the need for a predictable fiscal regime as the basin matures, which is critical in ensuring it remains competitive.
“We look forward to continuing our work with Government for these measures to be put in law and available for use to industry for deals from 1 November 2018. This in turn will ensure industry continues to provide security of energy supply for the longer term, contributing billions to the economy and supporting hundreds of thousands of high-value jobs.”
Nick Gardner, tax partner at law firm Ashurst, said: “The long awaited publication today of the draft legislation for the election to transfer tax history is to be welcomed.
“It is hoped that the introduction of the provisions with effect from this November will encourage new participants into the market, give them greater certainty that they will obtain tax relief for any decommissioning costs and assist in the UK Government’s drive to maximise economic recovery from the North Sea.
“The legislation is, however, highly complex and buyers and their financiers will need to consider carefully the extent to which there is any risk that an election may not deliver the promised tax history and incorporate appropriate contractual protections into sale documentation and loan agreements.”
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