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07 September 2012

Chancellor announces further action to stimulate investment in North Sea

The Chancellor of the Exchequer has today announced a new tax measure aimed at supporting billions of pounds of new investment in older oil and gas fields in the North Sea, increasing tax revenues from the industry.

A tax allowance for certain mature fields, known as brown fields, will shield a portion of income from the Supplementary Charge, encouraging companies to invest in getting the very most out of existing fields and infrastructure in the UK Continental Shelf.

The news comes on top of other ambitious announcements this year aimed at stimulating billions of pounds worth of investment and job creation in the North Sea, and throughout the supply chain.

As well as committing to sign contracts with industry to guarantee their long-term level of tax relief on decommissioning used assets, the Government has this year announced the introduction or extension of allowances for small fields, large shallow-water gas fields and fields in the West of Shetland. 

Announcing the news, the Chancellor said:

“Today’s tax allowance is more good news for the North Sea, good news for jobs and good news for the broader economy. It will give companies the incentive to get the most out of older fields, creating jobs and delivering more revenue for taxpayers.

“This Government has signalled its absolute determination to get more investment in the North Sea, a huge national asset. Just last week, I saw the benefits at a supply chain factory creating many hundreds of jobs in the North East thanks to Government support for North Sea gas which made a major project possible.”

Notes for editors

1. The Brown Field Allowance will shield up to £250m of income in qualifying brown field projects, or £500m for projects in fields paying Petroleum Revenue Tax, from the 32% Supplementary Charge rate (providing tax relief of up to £80m or £160m respectively).  The level of relief available to an individual project will depend on its size and unit costs.

2. A qualifying project will be an incremental project increasing expected production from an offshore oil or gas field as described in a revised consent for development which is authorised by the Department of Energy and Climate Change (DECC) on or after 7 September 2012, and has verified expected capital costs per tonne of incremental reserves in excess of £60.  The maximum level of allowance will be £50/tonne and will be available to projects with verified expected capital costs of £80/tonne or above.

3. The long-term tax revenues this generates are expected to significantly outweigh the initial cost of the allowance. The Office for Budget Responsibility will publish the full scorecard costings of this measure over the forecast period at the time of its autumn forecast. Initial estimations are that the change will cost around £100m a year in the forecast period.

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