Government consults on new UK tax allowances on high temperature oil and gas fields

HM 1Yesterday the Government published a consultation on a new cluster area allowance to encourage investment in ultra high pressure, high temperature oil and gas fields.

There is still a considerable amount of oil and gas to recover in the North Sea – up to 21 billion barrels of oil equivalent. However, exploration and production is becoming harder and more expensive.

The new allowance builds on Sir Ian Wood’s recommendations for maximising economic production of oil and gas. It has been designed not only to support investment in technically challenging development projects, but also to encourage exploration in the surrounding areas.

The allowance will reduce the tax on a portion of a company’s profits from 62% to 30% at current rates.

The Government is committed to maximising the benefits that the UK’s oil and gas resources can bring to the economy – not just through tax, but through jobs, skills and exports. The UK offers the strongest basis to maximise these benefits because of the size and diversity of its economy. It provides the stability and predictability needed for companies to invest and is able to adopt a long-term approach to the sector because of its broad shoulders.

George Osborne 1Chancellor of the Exchequer George Osborne said:

This is another example of how we are backing investment that creates jobs across the UK. The UK’s oil and gas industry is one of the country’s greatest industrial success stories, and this allowance will help ensure we continue to maximise the benefits from the sector for decades to come.

The government welcomes responses from industry, and will announce the final policy design in the autumn.

The allowance builds on the success of the government’s previous allowances, which directly incentivised around £7bn of investment in the North Sea last year, according to industry estimates. This investment supported over 100,000 jobs across the UK.

Oil and Gas UK LogoLater in the day the industry body Oil & Gas welcomes the announcement that the Government had published a consultation on a new cluster area allowance to support investment in ultra high pressure, high temperature (uHPHT) oil and gas fields.

Michael Tholen, Oil & Gas UK’s economics director, said:

“We welcome the announcement by HM Treasury that they have opened a formal consultation on how best to incentivise exploration and investment in the ultra high pressure, high temperature (uHPHT) opportunities on the UK Continental Shelf (UKCS).

“Experience shows, uHPHT fields are technically demanding and commercially difficult to develop, the current tax regime is seen by all to be a barrier to investment.

“The Government will need to work closely with industry to develop a simple allowance which promotes investment in uHPHT, encourages exploration of the surrounding area to fully utilise the potential of any resulting new infrastructure; a complex solution could lead to the wrong outcome.

“The Chancellor has recently launched a separate consultation into the overall fiscal regime for the UKCS and the uHPHT consultation should be seen in the wider context, a fundamental recalibration of the fiscal regime is essential if we are to build on Sir Ian Wood’s recommendations to maximise economic recovery and send a strong signal that the UKCS is open for investment.”


Pictured is George Osborne, MP Chancellor of the Exchequer

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