United Kingdom hands fresh tax breaks to spur North Sea spending
BY ALEXIS FLYNN AND NICK WINNING
LONDON -- The United Kingdom government announced a tax break to encourage investment in older oil and gas fields in the North Sea, a move the industry said will spur the sort of spending needed to squeeze resources from reservoirs that may otherwise be abandoned.
Oil and gas firms investing in certain mature North Sea fields known as brown fields will be eligible for up to $397 million in tax relief, and an additional $800 million will be shielded for projects in fields already paying the petroleum revenue tax. This would provide tax relief of up to $128 million and $256 million, respectively.
The United Kingdom treasury said the long-term tax revenues generated are expected to significantly outweigh the initial cost of the allowance, estimated at $160 million a year.
The move comes amid mounting pressure on the United Kingdom government, from business groups and voters, to do more to boost an economy that contracted for a third consecutive quarter between April and June. It also follows a contentious tax hike last year on North Sea production, which the industry characterized as creating uncertainty around continued investment in the mature, declining basin and some observers said contributed to an 18% fall in output in 2011.
Chancellor of the Exchequer George Osborne, in a statement, said the tax change will "give companies the incentive to get the most out of older fields, creating jobs and delivering more revenue for taxpayers."
Industry body Oil & Gas United Kingdom hailed the move, saying it could attract at least $3 billion in fresh investment.
The body's economic director, Mike Tholen, said the tax relief would have "an immediate impact," as it would spur spending on the kind of enhanced recovery techniques needed to squeeze the remaining oil out of the United Kingdom’s older reservoirs.
This initiative will sustain production from many mature fields, enabling more oil and gas to be recovered from them and postponing decommissioning by a number of years, said Mr. Tholen, adding that it could lead to an additional 150 MMboe being produced from the North Sea.
Dow Jones Newswires