Government cuts fracking tax by 30% and announces 50 new oil and gas licences as second generation North Sea jobs bonanza takes off

Michael Fallon, MP
Michael Fallon, MP

UK Energy Minister Michael Fallon has today announced that 52 new North Sea oil and gas exploration licences have been issued while – at the same time –  announcing details of new tax incentives to encourage offshore fracking.

Announcing the new licences at the Association of UK Independent Oil and Gas Exploration Companies (BRINDEX), Fallon said that Government ‘is working closely with industry to put in place the right fiscal and regulatory incentives in order to encourage more exploration by smaller independent companies.’

Set up 40 years ago, BRINDEX has 25 member companies who collectively hold interests in some 265 offshore and 63 onshore UK licences. These include interests in 48 producing oil fields and 20 producing gas fields as well as 26 oil and gas fields currently under development.

Fallon added; “The level of interest in this round demonstrates the continuing attractiveness of the UK’s oil and resources and licensing system. BRINDEX members form part of the vanguard of oil and gas explorers who are finding new ways to get at and extract these vital resources.

“The UK’s oil and gas industry is of strategic national importance. Some 20 billion more barrels of oil and gas could be produced, and it is vital that we maximise the opportunities available both in the North Sea and onshore to boost growth, energy security and jobs.

 

“Government will continue to support exploration in the sector. We expect considerable interest from developers in the 14th onshore licence round, which we plan to launch next year. We also intend to launch a new offshore round – our 28th – early in the New Year.”

Today’s announcement comes just 24 hours after Aberdeen Chamber of Commerce’s latest oil and gas survey revealed that – as Scottish Energy News reported yesterday –  virtually every one of its 200 sector member companies – 98% – are actively looking to recruit new staff as the North Sea undergoes a record £13.5 billion investment this year.

Government has already introduced fiscal incentives for offshore exploration, including increasing the size and scope of the small field allowance.

And to further encourage onshore unconventional oil and gas exploration, Fallon announced that the Government is consulting on a proposed tax regime for shale gas and is introducing a new shale gas ‘pad’ allowance which will reduce the tax on a portion of a company’s production income from 62% to 30% at current rates.

UK independent companies continue to play a critical and central role in the UK North Sea exploration and the Minister cited Edinburgh-based Cairn Energy, Fairfield Petroleum,  Enquest, Parkmead Petroleum, Encounter Oil and Trap Oil – which is involved in ‘unconventional’ (fracking) oil exploration.

In June, the Government announced a review of UK offshore oil and gas recovery and its regulation, led by Sir Ian Wood. Sir Ian Wood recently published his interim proposals, a number of which could contribute to improving the investment climate for independents.  These include:

  • Improving third party access to infrastructure.
  • Promoting successful collaboration across industry including on rig sharing and deployment of new      technologies.
  • Resolving commercial disputes more quickly.
  • Enhancing transparency and access to data.

The final recommendations of the Wood Review will be published in 2014.

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