The North Sea oil and gas industry has strongly welcomed today’s budgetary provisions to support the industry and the UK Continental Shelf basin through the deeply negative impact of the fall in the price of Brent crude.
Some of the measures introduced today were requested by the industry and have been implemented – like the reduction of the Supplementary Corporation Tax charge from 30% to its pre 2011 level of 20%.
The Chancellor has also helpfully simplified the tax regime by introducing a basin-wide composite Investment Allowance which replaces the current field allowances including the brown-field allowance.
This is seen as supportive of those investing in UKCS.
As well as these measures, Chancellor George Osborne has introduced some surprise measures which have been very well received.
Arguably chief amongst these is the reduction he has made to the Petroleum Revenue Tax [PRT] – a move aimed at supporting operators in the North Sea’s now characteristic ‘very mature’ fields. The elderly fields in the North Sea were, of course, the first connected to what remains the major part of the pipeline network in the basin, so the reduction of PRT, added to the other supporting measures, is regarded as sensitive to need and constructive.
As For Argyll has highlighted before, these operators have had a total tax take of over 80% – in circumstances of falling production and increased field maintenance costs, so it’s not hard to see why the changes to the tax regime made today are being greeted with genuine relief.
Sir Ian Wood of the Wood Group and author of the well received Wood Review of the industry, has welcomed what he has described as ‘a lifeline’ for the UKCS, hoping that it will see operators able to retain the work of their engineering teams in new field development here.
He has also noted with approval the specific measure to support new exploration – the UK government is itself to contribute £20m to what is described as ‘a speculative seismic programme’, providing to the industry information on potentially important new reservoirs in the less explored UKCS.
We would have been encouraged to see – and have not – measures introduced proactively now, to stimulate the development of the decommissioning industry, giving the UK an international lead in what will be the next big industry to come.
We accept, though, that the current situation is effectively firefighting to keep activity in the North Sea alive for the duration of the worldwide price-cutting war that has resulted from some major OPEC members’ need for cash flow and therefore OPEC’s agreed commitment to maintaining production levels to recover market share.
With delicate balancing to be done to address the country’s deficit level, firefighting has to get first call on available resources, but we hope to see imaginative measures introduced as soon as possible to take Britain into a lead role on decommissioning technologies – a cluster of expertise, intellectual property rights, skills and production that will have a worldwide market for 40 years.
