Budget lays foundations for regeneration of the UK North Sea
Published: 19 March, 2015
The move to restructure the North Sea’s tax regime to promote investment, announced by the UK Chancellor of the Exchequer in his Budget, was welcomed by Oil & Gas UK.
The industry body said, “the UK will continue to rely on oil and gas for the majority of its energy supply for many decades to come so this action, which will help to maximise recovery of that resource, is both sensible and far-sighted”. It added that these tax reforms will help to sustain an industry which supports hundreds of thousands of British jobs both in its domestic production activity and in the export of oilfield goods and services.
Malcolm Webb, Oil & Gas UK’s chief executive, commented that the “announcement lays the foundations for the regeneration of the UK North Sea. The industry itself must now build on this by delivering the cost and efficiency improvements required to secure its competitiveness.”
The Chancellor has confirmed a 10% point reduction in the supplementary charge, which reduces the headline rate of tax to 50%. The rate of petroleum revenue tax (PRT) is also being cut by 15% points from next year, resulting in a headline rate for PRT-paying fields of 67.5%. The new, simplified Investment Allowance will also provide a further engine for growth and investment.
Webb continued: “These measures send exactly the right signal to investors. They properly reflect the needs of this maturing oil and gas province and will allow the UK to compete internationally for investment.
“We also welcome the Government’s support for exploration...With exploration drilling having collapsed to levels last seen in the 1970s, the announcement of £20 million for the newly formed Oil and Gas Authority to commission seismic and other surveys on the UK continental shelf (UKCS) is a very positive step.
“Oil & Gas UK has previously welcomed the prospect of a City and Region Deal for Aberdeen City and Shire so we are encouraged by the news that negotiations on this will now begin and also that a similar deal is being progressed for Inverness.
“Along with substantial industry efforts to address its high cost base and the regulatory changes now in train to provide more robust stewardship, the foresight shown by the Chancellor in introducing these measures, will, we believe pay real long-term dividends for the UK economy.”
Oil & Gas UK estimates that, in the near-term alone, these measures could incentivise an additional £4 billion of capital investment, enabling the development of 500 million barrels of oil equivalent which at today’s prices are worth £20 billion.
