On 30 April 2003, James Sassoon, Managing Director, Finance, Regulation and Industry, at HM Treasury, wrote to industry representative bodies to take forward the Chancellor's Budget commitment to launch a consultation exercise to examine over the following six months whether there were cost-effective, targeted measures that could improve the current low levels of exploration in the North Sea. A copy of his letter to UKOOA is available by clicking here.
Through discussion with interested industry parties, Treasury, Revenue and DTI officials, working together, sought to gain a better understanding of how factors like materiality due to the size of prospects, high risks and high costs impact on industry decisions about exploration. This consultation exercise aimed to build on the work done by PILOT's Economic Advisory Group (see papers 01, 13, 15 and 16 at http://www.pilottaskforce.co.uk/data/actareas.cfm/3).
In the first stage of the exercise, officials are keen to gather information on:
- whether there are barriers to exploration and, if so, what these are;
- whether and why these are market failures;
- how the benefits of dismantling these barriers can be quantified; and
- any initial suggestions of appropriate Government measures which address market failures hindering otherwise economic exploration.
Initial submissions from interested parties were discussed on 13 June by a Steering Group chaired by James Sassoon. A short summary of the submissions and the presentations made to the Group are now available, together with letters setting out the future programme of work, both tax and non-tax:
Stage two of the process involved detailed analysis of a range of proposals, both tax and non-tax, in a number of different work groups. These work groups have covered:
- proposals made on fiscal measures
- infrastructure issues (looked at by PILOT 'think tank')
- non-tax delivery issues including access to acreage and data and the Operators' Code of Practice
Work has also been progressed on Yet-to-Find data, under the auspices of the Economic Advisory Group.
The work of these groups was discussed at a second Steering Group meeting on 29 September. A short summary of the points made at that meeting and links to the slides shown are attached below:
The Pre-Budget Report was published by the Treasury on 10 December 2003, setting out the key outcomes of the consultation process. (The PBR is available at www.hm-treasury.gov.uk.) It stated (paragraph 3.118) that, to encourage exploration and appraisal activity by companies new to the North Sea, the Government will introduce an exploration expenditure supplement. The supplement will ensure that the full economic value of the current 100 per cent allowance is maintained over time for those companies unable to make immediate use of the allowances. Full details will be announced at Budget 2004.
The consultation has also resulted in significant progress on non-tax issues such as terms and conditions for third party access to infrastructure. The Government will continue to monitor levels of exploration and work with industry to tackle barriers to investment that hinder maximum economic recovery of UK hydrocarbon reserves.
James Sassoon, jointly with Joan MacNaughton of the Department of Trade and Industry, wrote to Steering Group members on 10 December setting out the key outcomes of the consultation in more detail. A copy of that letter is available by clicking here.
The Terms of Reference for this work are as follows
The Government wishes to establish a consultation group to examine the issue of currents low levels of oil and gas exploration in UK waters, working in parallel with PILOT, the industry task force. Over the next six months, the group will consider whether there are cost effective, targeted measures that could help improve this situation and help maximise economic recovery of UK oil and gas.
Primary contacts for the consultation exercise, to whom further enquiries may be directed, were:
On non-tax issues:
Mike Earp
Energy Markets Unit
Department of Trade and Industry
1 Victoria Street
London SW1H 0ET
Tel: 020 7215 5271
Email: mike.earp@dti.gsi.gov.uk
On tax issues:
Mary Sullivan
Inland Revenue
Room 512, Melbourne House
Aldwych
Strand
London WC2B 4LL
Tel: 020 7438 6466
Email: mary.sullivan@ir.gsi.gov.uk
