The UK Chancellor has announced a raft of measures worth £1.3billion to help boost the North Sea oil and gas industry.
George Osborne said there would be the introduction of a “single, simple and generous” tax allowance for the industry from next month, with the Government also investing in new seismic surveys in under explored areas of the UKCS (UK Continental Shelf).
The OBR (Office for Budget Responsibility) has assessed that it will boost North Sea production by 15% by the end of the decade.
As previously hoped, the supplementary tax has been reduced from 30% to 20% – which the Chancellor said will be backdated to January of this year.
He said the challenges which face the industry currently posed a “pressing danger” to the industry which required “bold and immediate” action.
The Petroleum Revenue Tax is also set to be reduced from 50% to 35% to support continued production in older fields.
Industry body Oil & Gas UK said the measures lay “strong foundations for regeneration of the UK North Sea”.
Meanwhile the chief executive of the OGA (Oil and Gas Authority) said the sharp decline in oil prices had “magnified the very real challenges facing our industry”.
Andy Samuel said: “The Oil and Gas Authority (OGA) very much welcomes the Chancellor’s decision to reduce the rate of supplementary corporation tax for companies operating in the UKCS from 30% to 20% with immediate effect, and back-dated to the beginning of 2015.
“This is an important step as we continue to work closely with industry and government to secure long-term investment in this vital sector of the UK economy.
“So too is the 15% reduction in petroleum revenue tax from next year and the introduction of a single basin-wide investment allowance which will simplify the current arrangements and incentivise capital investment across the value chain.
“At the same time, the Chancellor’s commitment to provide £20 million of funding for new seismic and geophysical surveys in underexplored areas of the North Sea will provide a much needed boost for exploration activity, which has diminished in recent years.
“The sharp decline in global oil prices has magnified the very real challenges facing our industry and underlined the need for continued action and collaboration from industry, government and the OGA.
“Today’s new fiscal measures together with the rapid creation of the OGA demonstrate the Government’s support for the industry and its recognition that the UK must be in a position to compete effectively with other basins around the world.
“Industry must now move quickly to create a more competitive cost base and improve production efficiency in line with the goal of maximising economic recovery of the UK’s oil and gas resources. The OGA will actively support this work and monitor progress closely.”
Politicians from across all parties had urged the Chancellor to use his pre-election budget to bring in a package of measure to help the North Sea oil and gas industry.
The North Sea has been hit by the plunging price of oil, with hundreds of job cuts announced in recent months and fears a drop in investment could lead to the accelerated decommissioning of oil fields.
Danny Alexander, Chief Secretary to the Treasury, said: “The major package of investment in our oil and gas sector, including a new investment allowance, a 10% cut in the supplementary charge and a 15% cut in petroleum revenue tax, shows that the UK Government is determined to safeguard the future of this vital national asset and keep our economy on the road to recovery.”
Sir Ian Wood said this month’s budget announcement would be a “watershed” moment for the industry.
John Swinney, Scotland’s Deputy First Minister and Finance Secretary, said: “Measures to safeguard the North Sea are a step in the right direction for our oil and gas sector.
“The Scottish Government has been calling for such measures, along with the industry, for some time.
“Today’s measures are a glaring admission by the Chancellor that his policy for the North Sea has been wrong and the poor stewardship by the UK Government has had a detrimental impact on our oil and gas sector and the many people who work in the industry.
“It has taken the Chancellor four years to admit the tax rise he implemented in 2011 was a mistake. A heavy price has been paid for this mismanagement.
“Today I cautiously welcome the U-turn by the UK Government to take action on the future of the North Sea. We will study the proposals in detail. It is now essential that work is focussed on boosting investment and growth in the North Sea sector.”
Following the budget announcement, Scottish Conservative leader Ruth Davidson said: “The Chancellor has listened to the oil industry and come good on the pledge we made to help.
“These tax breaks will aid investment and ensure a secure future for the North Sea.
“I met with Oil and Gas UK last week and I know £1.3 billion will be a huge boost to North Sea operators.
“Today’s announcement won’t be a cure for all of the North Sea’s ills, but it’s a strong start.
“This is yet more proof that the North Sea is best served within the strength of the UK, which can deliver assistance a separate Scotland simply would not have been able to.”
The changes were also welcomed by the chief executive of Aberdeen & Grampian Chamber of Commerce (AGCC) Robert Collier.
He said: “Our members will be pleased to see these significant reductions in oil and gas taxation.
“The Chancellor has sent a clear signal that he wants to encourage further exploration and investment in the UK Continental Shelf.
“Only time will tell whether these measures will be a sufficient incentive, and we will be consulting with our oil and gas members to feed back their reaction.”
For more analysis here on Energy Voice, click here.
And for a general budget round-up visit our sister publication the Press and Journal for the the winners and losers from this years budget.