Chancellor George Osborne has announced major changes to the North Sea tax regime in his Budget in response to difficulties facing the UK oil and gas sector.
To encourage further investment in the North Sea, the government will introduce a new Investment Allowance and reduce the supplementary tax charge on oil and gas companies further, from 30% to 20%, from 1 January 2015.
The rate of Petroleum Revenue Tax paid on older oil and gas fields will also be reduced from 50% to 35%.
These changes are expected to increase oil production by around 15% by 2019, and drive £4 billion of new investment over the next five years.
Osborne also gave the go-ahead to a £60 million investment in the new Energy Research Accelerator and confirmed the new national energy catapult will be in Birmingham.
The Chancellor told MPs: “While the falling oil price is good news for families across the country, it brings with it challenges for hundreds of thousands whose jobs depend on the North Sea.
“Thanks to the field allowances we’ve introduced we saw a record £15 billion of capital investment last year in the North Sea.
“But it’s clear to me that the fall in the oil price poses a pressing danger to the future of our North Sea industry – unless we take bold and immediate action. I take that action today. First, I am introducing from the start of next month a single, simple and generous tax allowance to stimulate investment at all stages of the industry.
“Second, the government will invest in new seismic surveys in under-explored areas of the North Sea basins.
“Third, from next year, the Petroleum Revenue Tax will be cut from 50% to 35% to support continued production in older fields.
“Fourth, I am with immediate effect cutting the Supplementary Charge from 30% to 20%, and backdating it to the beginning of January.
“It amounts to £1.3 billion of support for the industry. And the OBR assesses that it will boost expected North Sea oil production by 15% by the end of the decade.”
Andrew Speers, Managing Director, Petroplan, a recruitment company in the oil and gas industry, commented: “North Sea oil fields are recognised internationally as a training ground for some of the most skilled oil and gas professionals in the world.
“Providing businesses involved in this sector with additional support in the form of this significant tax break will support the continued growth of talent for a global industry.
“The North Sea is a mature basin with operators focused on extending the productive life of the existing infrastructure and this change in use of these assets will likely require different skill sets. The required talent may not have been attracted to the region without this supportive fiscal arrangement.