Industry leaders have welcomed a new North Sea oil and gas tax allowance announced by Chancellor George Osborne.
The new allowance will shield up to £500million of income from the supplementary charge on producers on old fields subject of new investment to boost production.
Walter Cumming, head of oil and gas at Barclays, said: “This is good news for operators, investors and for the province as a whole – measures which provide incentives to continue investing in older North Sea oil and gas fields are not just valuable, but vital.
“Providing allowances for brown fields will help ensure exploration and production companies get the most out of these more mature areas, with the reassurance of greater protection for their returns on investment.
“Often it is said that the province is little more than a declining prospect, but this is not the case. While we all recognise that decommissioning is inevitable part of the industry’s future, the sector is continuing to attract operators and, more recently, significant interest from foreign investors, as has been seen with the move by CNOOC and Sinopec to acquire North Sea assets.
“A significant proportion of the operations under way on the UK Continental Shelf involve older fields and it is hugely important that companies are not discouraged from continuing their activities, which provide enormous benefits to the whole of the country and to the industry.
“A healthy energy industry supports the wider economy, creates jobs and assists other sectors including manufacturing.
“At a time when it has been suggested that more than 100,000 oil and gas industry recruits will be needed for Aberdeen to realise its potential as a global energy hub, today’s announcement is precisely what the major companies are looking for – robust incentives to continue investing in the North Sea.”
Martin Findlay, head of tax at KPMG in Aberdeen, said: “Today’s announcement of a Brown Field Allowance will reduce the tax rate from 62% to 30% on profits of up to £500million from certain new investments on existing North Sea fields.
“Although the proposed allowance is at a lower level than had been hoped for, this news will be welcomed by many oil companies and north east businesses involved in oilfield services as it should unlock investment in the North Sea.
“Looking further ahead, all attention will now turn to the perhaps more important consultation that is ongoing on decommissioning. We hope that policymakers will continue to work towards the Government’s stated intentions to provide certainty on the tax reliefs available on decommissioning in order to unlock even further investment in the North Sea.”
Oil and Gas UK welcomed the measure and said it knew of about 10 brownfield projects that could go ahead as a result of the new tax relief.
Economics and commercial director Mike Tholen said: “We believe in the near term – in one to two years – it should rapidly lead to a number of new investments amounting to £2billion, create many thousands of high skilled jobs, add tax revenues of over £1.5billion and increase oil and gas recovery by 150million barrels of oil equivalent, and have a further long term impact.”
Derek Leith, head of oil and gas taxation at Ernst & Young and the firm’s Aberdeen office managing partner, said: “This announcement is another positive step towards restoring fiscal stability in the UK Continental Shelf.
“It is the result of detailed discussions industry has undertaken with HM Treasury since the shock introduction of the supplementary charge in the 2011 Budget and highlights Government acceptance that long-term tax strategies shouldn’t be abandoned in favour of short-term political expediency.”
Tom Cartwright, a member of law firm Pinsent Masons’ energy team, said: “The government seems to now fully understand the continued potential of the North Sea and its importance to the UK economy.”
But he warned: “However, trust, once broken, is hard to replace and industry players will need further reassurance over a period of time for credibility to be fully restored.”
Leo Koot, managing director of Westhill-based operator TAQA Bratani, said: “This is a positive move by the Government to support investment in late life fields which is otherwise held back by the high marginal tax rates imposed on them. We need to see the detail of the proposals, but welcome the introduction of a new allowance targeted at incremental investment in older fields.
“We see significant investment opportunities remaining in our mature fields, including redevelopment opportunities, and the changes announced this morning should, subject to the detail of their implementation, help to make these investments commercial and therefore extend the life of the fields”.
Amjad Bseisu, chief executive of Aberdeen-based operator EnQuest, said: “EnQuest welcomes today’s announcement from HM Treasury in support of investment in mature oil fields, some of which might otherwise not be economically viable.
“This is a further step forward for the UK North Sea oil industry’s fiscal regime and is positive for EnQuest, as it executes its strategy of delivering sustainable growth in the production of North Sea oil.
“New allowances for brownfield projects will help to extend field lives, sustaining investment in the more mature fields such as EnQuest’s Thistle and Heather fields, in the northern North Sea, all of which will safeguard existing jobs and support the creation of new jobs across the energy supply chain.”