Shake-up of oil rig duty could shrink profits

 
Suzie Neuwirth
THE OIL and gas industry yesterday warned that tax changes on drilling rigs outlined in the Budget would put UK North Sea projects at risk.

The International Association of Drilling Contractors (IADC) said that changes to the bareboat charter, which will result in higher rates for drilling rigs and floating vessels, “will cause the UK offshore sector to shrink” and “render some UK projects uneconomic”.

“Where the additional costs cannot be passed on to the client, rigs may be withdrawn from the UK, and new North Sea class rigs intended for the UK Continental Shelf will be diverted to countries where economic returns are more predictable,” it said.

It is understood that the Treasury sees the changes as correcting an inequality in the tax system that put oil rig operators at an advantage.

But tax breaks for North Sea exploration activities have been welcomed more warmly by the industry.

Today Maersk Oil and BG Group have said that the new allowance for ultra high pressure, high temperature fields will help them develop two new projects, which will lead to investment of £6bn and create more than 700 jobs.