North Sea oil investment is set to boom if the Budget produces a tax change

Courtney Goldsmith
Follow Courtney
The North Sea still holds billions of barrels of oil and gas (Source: Getty)

The chancellor is expected to encourage investment in North Sea oil and gas by tweaking tax rules in his Budget this week.

Oil and gas producers are still hurting from the 2014 slump in oil prices, and the trade body Oil & Gas UK today said the government has a chance to make a "vital" tax change that could unlock around £40bn worth of investments.

Philip Hammond hinted that he was "looking at" changing tax rules to allow producers selling fields to transfer credits to new owners in an interview with the Sunday Times.

Read more: An oil group is targeting a £39bn price tag for North Sea decommissioning

Currently, the history of tax paid remains with the asset’s original owner even if the asset changes hands. A change would allow buyers to reclaim the costs of decommissioning wells, making buying and selling mature oil fields more attractive.

Oil & Gas UK says the move will save taxpayers millions by prolonging the life of older fields, thereby deferring decommissioning, and save the Treasury an average of £10m per asset in deferred tax relief.

Hammond said North Sea tax reform was the top request of his Scottish colleagues, and he added that the Treasury would make sure it doesn't "inadvertently create scope for gaming" the tax system.

Deirdre Michie, chief executive of Oil & Gas UK, said tax reform would extend the life of the basin.

Mature assets have attracted private equity funds and smaller producers who are able to use new technologies and techniques to extract oil out of older fields, but Michie said the current tax position is blocking potential deals.

Michie said:

Transferable tax history would boost the number of mature field deals we are seeing in the North Sea. This, in turn, would help bring fresh investment into the basin, generate new production and provide extra tax revenues for Treasury.

In his Spring Budget, Hammond unveiled new measures to review tax relief to maximise the North Sea's remaining reserves, but he was criticised by industry players for his lack of urgency in the matter.

Read more: The tide is turning for North Sea oil and gas

Related articles