HM Treasury

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27 January 2010

Tax boost for West of Shetland gas fields

Oil companies operating in the most difficult to exploit areas of the UK Continental Shelf are to receive a boost under planned legislation from the Government. The measure could provide up to £160 million worth of tax relief for each gas field in the West of Shetland region that qualifies for the support.

Following extensive discussions with industry, the Government is introducing secondary legislation to encourage the development of remote gas fields in the West of Shetland region.

The area to the West of the Shetland Islands is the last major area of the UK Continental Shelf to be developed and infrastructure will be critical to fully unlocking the gas potential of the region. It is estimated that the area contains around 20% of the UK’s remaining oil and gas reserves. 

Today’s announcement provides vital support for the development of remote gas fields located in deep water and will enable the development of strategic gas infrastructure in the region.

The Chancellor, Alistair Darling said:

"The Government recognises the importance of the UK oil and gas industry to our economy and the dependable foundation it provides for the UK’s energy security.

“We must ensure that the UK taxpayer receives a fair return from the extraction of our national resources and we are committed to maximising the economic exploitation of the UK’s reserves. Today’s announcement will continue to support investment in the North Sea, the fuel this delivers, the contribution this makes to our economy, and the jobs and skills the industry supports and develops."

The legislation is subject to approval by the House of Commons, which will be sought no later than the end of March 2010.

Notes for editors

1. The legislation will enter into force the day after it is made. Full details of this measure, including the planned legislation, will be issued on HM Revenue and Customs’ website in due course when the legislation is laid before the House of Commons.

2. The incentive announced extends the “field allowance”, announced in Budget 2009, and introduced in Schedule 44 to Finance Act 2009, to remote deep water gas fields, which are found in the West of Shetland area.

3. The field allowance works by exempting an amount of income from the supplementary charge. All profits generated by the qualifying field would still be subject to ring fence corporation tax (currently 30%).

4. Supplementary charge (currently 20%) would still be due on profits in excess of the available field allowance.

5. The maximum allowance available for a qualifying field will be set at £800 million. At current tax rates this would reduce overall tax liability of the field owner(s) by up to £160 million spread over a minimum of five years from the year of first production from the field.

6. One project that could stand to benefit from the allowance is the project to develop the Laggan and Tormore fields. The project partners will consider the sanction of the project in Spring 2010.

7. If the project is sanctioned and proceeds on schedule, the first production of gas from Laggan and Tormore is expected by 2014.

8. If the Laggan/Tormore project goes ahead, there are two fields and thus the allowance could reduce the overall tax liability of the project by up to £320 million.

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