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    Budget should generate potential boost for North Sea

    News // April 27, 2009

    Deloitte says many of the announcements on North Sea taxation in the UK budget last week are in line with expectations based on two consultation documents published since the 2007 Pre-Budget Report.

    Whilst the tax take from the North Sea is expected to almost halve in 2009-10, the announcements are positive for the industry and are intended to make North Sea projects more economically viable in a period of lower oil prices.

    Deloitte said highlights of the Budget included:

    • A Field Allowance to offset against the Supplementary Charge which will be available for small fields as well as challenging High Pressure/High Temperature and Heavy Oil fields, which the Government hopes will unlock up to two billion barrels of oil. A fixed amount will be available to reduce tax payable for qualifying fields given development consent on or after 22 April 2009.
    • In a bid to maximise use of existing North Sea assets and infrastructure as well as encourage investment in renewable energy, fiscal barriers will be removed where these assets and infrastructure are reused, potentially benefiting offshore wind generation, gas storage and CCS (carbon capture and storage) projects. These include removing any income from change of use activities from the scope of Petroleum Revenue Tax and allowing relief against corporation tax and Petroleum Revenue Tax for decommissioning costs for change of use assets.
    • Capital allowances will also be available for cushion gas in gas storage projects.
    • Effective as of 22 April 2009, chargeable gains on North Sea asset disposals will be exempt where proceeds are reinvested in the UKCS or where licences of the same value are swapped. This should facilitate transfers of oil licences and will serve to ensure that these assets are successfully developed.
    • Measures to reduce the administrative burden of Petroleum Revenue Tax and repeal of obsolete Petroleum Revenue Tax legislation were also announced along with anti-avoidance measures to prevent benefiting from tax relief for decommissioning costs where decommissioning has not yet been undertaken.
    • Whilst no specific further consultation is planned, the Government has indicated that it wishes to continue to engage with the industry to ensure the fiscal regime is attractive for the future of the UK North Sea and therefore further incentives may be considered in due course.

    Andrew Ogram, Oil & Gas Tax Partner in Aberdeen said: "These announcements are very much as anticipated having been trailed by last year's Pre Budget report, nonetheless I am sure they will be welcomed by the industry. Having said this some will be disappointed that the announcement did not go further given the current oil price environment and declining exploration activity, for example to introduce additional incentives for companies to explore in the UK.”
     
     

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