UK Treasury Reveals More Details of Oil, Gas Fiscal Reform

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HM Treasury has issued more details of plans announced by UK Chancellor George Osborne Wednesday to reform the country’s oil and gas tax regime.

Issuing a report titled ‘Driving investment: a plan to reform the oil and gas fiscal regime’ Thursday, the Treasury expanded on the announcement made in the Autumn Statement that the government will reduce the Supplementary Charge on UK Continental Shelf oilfield profits from 32 percent to 30 percent and extend the ring-fence expenditure supplement from six to ten years.

The report also outlined plans to look at financial support for seismic surveys in underexplored areas of the UKCS and mentioned that further work would be carried out on options to support exploration through the tax system, such as tax credits. The Treasury will also develop options to improve access to decommissioning tax relief and work with the UK’s new Oil and Gas Authority to consider options for reforming the fiscal treatment of infrastructure, with further consultation with the industry in 2015.

The Treasury said: “These measures represent a radical plan to reward investment in the UKCS at all stages of the industry life cycle. These reforms will make the fiscal regime more competitive, simpler and more predictable and represent the most balanced and investment-focused way to move to a lower tax burden over time. They will support billions of pounds of investment throughout the lifecycle of fields.”

Late on Wednesday, trade body Oil & Gas UK responded to the Chancellor’s plans for oil and gas tax in Autumn Statement by stating that the reduction in the Supplementary Charge is “an important first step towards improving the fiscal competitiveness of the UK North Sea”. Oil & Gas UK noted that it was the first cut in tax rates for the UK North Sea in 21 years.

The organization also welcomed the announcement of the extension to the ring fence expenditure supplement and the introduction of a new allowance that aims to encourage investment in the development of high pressure, high temperature fields within cluster areas.

Oil & Gas UK Chief Executive Malcom Webb commented in a statement:

“We understand the economic constraints under which today’s Autumn Statement is delivered. Therefore we take the Chancellor’s announcement of a reduction in the industry’s tax rate as an important first step to improve the fiscal competitiveness of the UK North Sea.  

“Oil & Gas UK also welcomes the extension of the ring fence expenditure supplement, which will allow investors to offset their costs against future production for a period of up to ten years instead of the current six years. This move, which brings the offshore in line with onshore oil and gas production, could help attract new entrants into the basin and is just one of a range of fresh measures needed to help improve the investment outlook.

“However, these can only be seen as first steps towards improving the overall fiscal competitiveness of the UK North Sea. We will certainly need further reductions in the overall rate of tax to ensure the long term future of the industry. Given the current crisis in exploration, we also need to see measures to promote exploration activity across the basin.”

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