North Sea oil and gas producers received a boost from the government today as chancellor Philip Hammond announced tax changes aimed at increasing investment.
In the Autumn Budget, Hammond revealed the government would introduce transferrable tax history for oil and gas fields in the North Sea from November 2018.
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.
Hammond said the government has plans for "an innovative tax policy that will encourage new entrants to bring fresh investment to a basin that still holds up to 20 billion barrels of oil".
Revitalising the North Sea
Derek Leith, EY’s head of oil and gas tax, said the change has the potential to "revitalise" the industry, saying it was a “clear demonstration" that the government wants to make the most of the UK's remaining oil reserves.
Ewan MacKinnon, investment director at Maven Capital Partners, added that it was "essential" the right assets get to the right owners: private equity firms and smaller producers are better able to extract oil out of older fields by using new technologies and techniques.
"It has been proven time and again companies that specialise in late life assets can be highly successful in buying maturing North Sea fields. For example, Apache's Forties field is still going strong 15 years after it was acquired from BP," MacKinnon said.
Leith added: “New investment in the UKCS [UK Continental Shelf] is the lifeblood to preserving an industry which has made a huge contribution to the UK’s economy over many decades, and supporting a supply chain focused on innovation and internationalisation.”
No silver bullet
However, David Blumenthal, legal director at Clyde & Co said the tax change was not a "silver bullet". "More government support is needed to reverse the decline in oil and gas production in the North Sea that we have seen in the last few years," he said.
Draft legislation will be published in spring 2018, and the government will legislate to make transferable tax histories available from 1 November 2018.