Chancellor confirms talks on more N. Sea tax breaks to prevent premature decommissioning, but Labour and SNP demand action

British Chancellor Phil Hammond has confirmed – as expected – that he will set up an expert panel with the N. Sea oil and gas industry to investigate the use of tax incentives to make it easier for operators to sell ageing oil and gas fields to keep them productive for longer.

In his Budget statement today, he said that ‘maximising economic recovery’ of N. Sea oil and gas is essential. A formal discussion paper on the options to minimise liability to UK taxpayers and prevent premature decommissioning of fields will be issued ‘in due course’, he added.

Investment in new N. Sea exploration remains at record lows and the basin urgently needs fresh capital to stimulate activity to unlock the UK’s estimated remaining resource of up to 20 billion barrels of oil and gas.

Mark Andrews, UK Head of Oil & Gas at professional advisory services firm KPMG, explained: “The degree to which late life assets can find the right ownership and investment is a significant factor in the UK achieving maximising economic recovery (MER). 

“Government, the Oil & Gas Authority and industry recognise there is a potential issue with the inability to transfer tax history. Today’s confirmation that there is potential for changes to the fiscal regime to overcome this is very welcome.

“Recent Budgets have seen a number of positive moves by HM Treasury to support the competitiveness of the UK Continental Shelf (UKCS). The willingness to address this latest issue within a short timescale is a positive signal to the industry, which could ultimately unlock asset transfers and stimulate M&A interest in the basin.”

Oil and Gas UK said it was “continuing to ask the Treasury to revise the tax treatment of decommissioning liability in support of this”.

Alexander Burnett, MSP
Alexander Burnett, MSP

North-East MSP Alexander Burnett, the Scottish Conservative energy spokesman, commented: “I welcome the Chancellor’s announcement today of an expert panel to explore how tax reform could make it easier for operators to sell mature fields.

“The transfer of decommissioning tax relief could help to prolong the life of ageing assets and prevent the early break-up of infrastructure in the North Sea.

“I said at the Scottish Conservative conference last weekend that, whilst we are seeing signs of recovery in the oil and gas sector, we always need to be vigilant and listen to the industry.

“The measures announced today, the latest in a package worth £2.3 billion in the last three years, make it clear that the North East can continue to rely on the broad shoulders of the United Kingdom.”

Kezia Dugdale, MSP, leader of the Labour party in the Scottish parliament, said: “The government’s support for the North Sea oil and gas industry is welcome, but it isn’t nearly enough.

“Revenues have collapsed and thousands of people have lost their jobs as a result of the downturn. The oil and gas industry needs more than a discussion paper and expert panel.

“Scottish Labour has set out a plan for the government to buy key oil and gas assets to ensure vital pipelines remain open until the industry picks up again.”

And Labour’s Shadow Scottish Secretary Dave Anderson, MP, added: “This is a missed opportunity from the Tory government.

“It was speculated before the budget that there may have been some tax relief for the industry, but we have now heard that the Chancellor has taken the inadequate step of launching a consultation in the form of a formal discussion paper.

“The industry is of vital importance to the Scottish economy, and in particular to the north east where we have already seen an astronomical loss of jobs as a result of the downturn.

“Time and time again, the Tory Government has hidden from the problems facing the oil and gas industry and kicked it into the long grass to be dealt with at a later date.

“It is time the Government took action to help attract much-needed investment to the offshore oil and gas industry.”

Callum McCaig, MP
Callum McCaig, MP

For the SNP, Callum McCaig, MP (Aberdeen South) – the party’s Energy spokesman in the Westminster parliament – said confirmation that the UK Government will publish a discussion paper and establish a panel of industry experts to consider how tax can assist sales of oil and gas fields is welcome.

But he added: “While any action is welcome, the Chancellor has moved at a glacial pace. The fact the Chancellor is just getting around to this now shows an alarming lack of urgency and a gives the industry a clear sense of where this Tory government’s priorities lie.
 
“Where was the Chancellor when thousands of oil and gas workers were facing redundancy, and why didn’t they listen to repeated and sustained calls from the SNP throughout this time for a more stable, competitive fiscal regime?
 
“Reform of decommissioning tax relief could mean that assets are in the hands of the companies best placed to boost production, but this is just one side of the coin – we still see no action from the UK government on boosting exploration, which is key to long term investment, revenue and crucially jobs in the North Sea. 

“The new panel must focus on boosting production in the here and now, and consider very carefully how best to maximise the tens of billions of barrels of reserves which remain in the North Sea. Extending the lifespan and revenue potential of the basin must be central to considerations here. 

“Now that the Chancellor has announced his expert panel it must get to work, and fast. The UK government should set out the remit of the expert panel and the timescale for reporting its findings in early course. This Tory government cannot be allowed to stall yet again on supporting this vital industry.”

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