The UK Government will publish its first autumn budget next month and this is traditionally a time for reviewing the nation’s finances and proposals for taxation.
Eyes and ears in the north-east of Scotland will be paying heed for any good news for the oil and gas industry, where the smallest of changes can affect the economy by billions of pounds.
Of particular interest is how tax relief for the decommissioning of oil and gas assets could be adapted to unlock greater value from the UK continental shelf.
Almost $6 billion worth of mergers and acquisitions took place in UK oil and gas in the first half of this year.
Diversification of assets and transfers has been key to this, but one of the biggest barriers to obtaining tax relief is the difficulty in a buyer obtaining corporation tax payments from a seller.
Transferable tax history (TTH) would see the seller transfer some of this data to a buyer, who could carry back any decommissioning losses against it, allowing it to receive a tax refund that may otherwise not have been available.
Since 1975, the UK’s oil and gas tax regime has taxed the profits of exploratory and drilling companies, based on the life cycle of each project.
Tax deductibles included the costs for exploring, developing and decommissioning.
Crude oil prices may have collapsed three years ago but the industry has increased its output due to money spent when prices were still high.
Since the worldwide economic downturn, firms of all sizes have stayed their hand on billions of pounds worth of investments.
This means growth could be short-lived if there is no investment made in the basin.
Large-scale employers with people from all over the world on their books are waiting to see the outcome of negotiations relating to Brexit and freedom of movement for workers, as well as how goods will move across borders.
Chevron North Sea has reported higher revenues and pre-tax profits for the 2016 year to December after seeing “some stabilisation” in the average price of oil.
It’s not alone in having some optimism, but further growth will depend on job creation and a buoyant market.
The decommissioning of North Sea assets is vital to maintaining our economic recovery.
For this reason, I’ve made a formal submission to make the case for TTH and written to the Chancellor of the Exchequer.
I’ve met Philip Hammond in Westminster to discuss this, and welcomed him to Aberdeen only last month, when he announced a new £5 million fund for further exploration.
There are significant hurdles to overcome in introducing this change for the Treasury.
The methodology used alone has exercised an expert panel asked to assess evidence from the industry.
Although conditions are challenging, companies are becoming more efficient and competitive in a lower oil price environment.
Compared to the other oil-producing regions of the world, the UK industry is also known for its unparalleled supply chain.
There is lots to be enthusiastic about.
The cost of lifting oil from the North Sea has almost halved since 2014 – this improvement to unit operating cost is greater than improvements achieved by any other basin
Production has increased by 16% since 2014 – driven by production efficiency improvements, brownfield investment and new field start-ups
Changes to the tax regime have helped create one of the most competitive fiscal regimes for upstream investment globally.
The UK government is also backing plans to establish Aberdeen as a global leader in decommissioning, creating skilled jobs and exporting this advanced knowledge to other countries.
Work that has already been done is going a long way to restoring the North Sea’s position as an ideal place to invest.
Industry experts are saying there is £40 billion worth of development opportunity available in the UK’s coastal territory, already slated to go live if conditions improve.
There are now 13 Conservative MPs in Westminster who represent Scottish constituencies, and many of us have large communities which thrive on the success of oil and gas.
We are using our influence at the heart of government and the voice of the north-east is being heard loudly. We can deliver.
The introduction of TTH would allow new operators to extend the life of our assets in the North Sea.
This would only help recovery, rather than consign it to an early grave.