Feeds

Osborne hands £80m tax break to punters drilling in 'old' oil, gas fields

Brown Field Allowance will 'repair damage' from 2011 rise – energy law expert

High performance access to file storage

A new tax break for operators of older "brown field" oil and gas fields in the North Sea shows that the government understands their continuing importance to the wider economy, an energy expert has said.

Tom Cartwright of Pinsent Masons, the law firm behind Out-Law.com, said that measures announced by the Chancellor of the Exchequer last week were the "latest step being taken by government to repair the damage done" by tax increases on the oil and gas industry in 2011.

However, he warned that oil and gas producers would need "further reassurance" from the government before its credibility with the industry would be "fully restored".

The new tax measure, announced by George Osborne on Friday, is intended to encourage billions of pounds worth of potential investment in older oil and gas fields in the North Sea, the government said. The new Brown Field Allowance will exempt a portion of the income generated from certain mature fields from the 32 per cent Supplementary Charge (SC).

Osborne said that the announcement was "more good news for the North Sea", which he described as a "huge national asset". It follows the introduction or extension of allowances for small fields, large shallow-water gas fields and fields in the West of Scotland earlier this year, as well as a Government commitment to sign contracts with the industry to guarantee long-term tax relief when used assets are decommissioned.

"Today's tax allowance is more good news for the North Sea, good news for jobs and good news for the broader economy," Osborne said. "It will give companies the incentive to get the most out of older fields, creating jobs and delivering more revenue for taxpayers."

According to the Treasury's announcement, the long-term revenues generated by the new initiative are expected to "significantly outweigh" the initial cost of introducing the allowance, which it said would cost around £100m a year. Government watchdog the Office for Budget Responsibility (OBR) will publish "full scorecard costings" of the measure as part of its autumn forecast, it said.

The new allowance will exempt up to £250m of income in qualifying brown field projects, or £500m for projects in fields paying Petroleum Revenue Tax, from the SC rate; resulting in tax relief of up to £80m of £160m respectively. The relief will be granted to individual projects on a case by case basis, depending on the size and unit costs of the project.

The Department for Energy and Climate Change will issue revised consents for development to qualifying projects on application from 7 September 2012. Incremental projects increasing expected production from offshore oil or gas fields, with verified expected capital costs per tonne in excess of £60 on their incremental reserves, will be entitled to apply for the relief. The maximum level of allowance will be £50/tonne, available to those projects with verified expected capital costs of £80/tonne or above.

Industry body Oil and Gas UK welcomed the announcement, which it described as a "strong signal" of the Government's stated commitment to make the most of the UK's existing oil and gas resources. Brown field sites, according to its director Mike Tholen, typically have high running costs and can be subject to up to 81 per cent tax on production.

"This initiative will have an immediate impact in that it will help to promote investment and sustain production from many mature fields, enabling more oil and gas to be recovered from them and postponing decommissioning by a number of years," Tholen said. "The measure builds on recent constructive interventions by the Treasury and we believe in the near term it should rapidly lead to a number of new investments amounting to £2bn, create many thousands of high skilled jobs, add tax revenues of over £1.5bn and increase oil and gas recovery by 150 million barrels of oil equivalent, and have further long term impact."

Copyright © 2012, Out-Law.com

Out-Law.com is part of international law firm Pinsent Masons.

High performance access to file storage

More from The Register

next story
Elon Musk's LEAKY THRUSTER gas stalls Space Station supply run
Helium seeps from Falcon 9 first stage, delays new legs for NASA robonaut
Russian deputy PM: 'We are coming to the Moon FOREVER'
Plans to annex Earth's satellite with permanent base by 2030
KILLER SPONGES menacing California coastline
Surfers are safe, crustaceans less so
LOHAN's Punch and Judy show relaunches Thursday
Weather looking good for second pop at test flights
Discovery time for 200m WONDER MATERIALS shaved from 4 MILLENNIA... to 4 years
Alloy, Alloy: Boffins in speed-classification breakthrough
Red-faced LOHAN team 'fesses up in blown SPEARS fuse fiasco
Standing in the corner, big pointy 'D' hats
Curiosity finds not-very-Australian-shaped rock on Mars
File under 'messianic pastries' and move on, people
Top Secret US payload launched into space successfully
Clandestine NRO spacecraft sets off on its unknown mission
Get your MOON GEAR: Auction to feature Space Race memorabilia
Keepsakes from early NASA, Soviet programs up for bids
prev story

Whitepapers

Securing web applications made simple and scalable
In this whitepaper learn how automated security testing can provide a simple and scalable way to protect your web applications.
Five 3D headsets to be won!
We were so impressed by the Durovis Dive headset we’ve asked the company to give some away to Reg readers.
HP ArcSight ESM solution helps Finansbank
Based on their experience using HP ArcSight Enterprise Security Manager for IT security operations, Finansbank moved to HP ArcSight ESM for fraud management.
The benefits of software based PBX
Why you should break free from your proprietary PBX and how to leverage your existing server hardware.
Mobile application security study
Download this report to see the alarming realities regarding the sheer number of applications vulnerable to attack, as well as the most common and easily addressable vulnerability errors.