North Sea businesses hoping to benefit from decommissioning tax breaks were left wanting by the Chancellor’s Autumn Statement today.
But a top oil industry economist has said reliefs that would smooth the transfer of late-life assets, unlocking investment in the process, might not be too far away.
Industry body Oil and Gas UK had called for the introduction of measures enabling the transfer of tax reliefs upon sale, but Chancellor Philip Hammond did not touch on the issue.
Alex Kemp, professor of petroleum economics at Aberdeen University, said he felt industry had a “good case” for receiving an additional boost.
Prof Kemp said: “Certainly, industry would have liked more tax relief and I thought that might promote the MER (maximising economic recovery) strategy.
“I also thought there was a case for helping facilitate late-life asset transactions.
“Some companies want to sell and some are prepared to buy. The buyer might be able to produce for a few years, but would have difficulty getting relief from the decommissioning costs that come after, and that’s the big problem.
“The idea is that the seller of the mature field should be able to transfer its tax history to the buyer as part of the overall transaction.
“That has been under discussion. It did not happen today, but I’m guessing it is still under review and may come up in next year’s Budget.”
Prof Kemp also said that although oil and gas tax revenues were expected to be negative in 2016-17, Treasury forecasts indicate a return to positive territory in the coming years thanks to higher production and oil prices.
The Office for Budget Responsibility (OBR) predicted oil prices would average about $54 a barrel next year, rising to $60 by 2021.
Its revenue forecast has also been revised up in all years – by £2.5billion in 2020-21 – and is now positive from 2017-18 onwards.
Prof Kemp said: “The OBR says production of oil will go up over the next two to three years so that’s encouraging.
“This was always possible with new fields coming on stream and production efficiency going up significantly, so there will be some potential for growth in tax.”