North Sea tax measure to unlock upstream UKCS investment
Chancellor Philip Hammond announced a tax measure which will unlock further investment in the UK North Sea by enabling more assets to change hands and allow new owners to provide fresh investment in many mature oil and gas fields.
Oil & Gas UK has been working constructively with HM Treasury for a number of years on measures to help further unlock asset trading in the UK North Sea and generate additional tax revenues.
Deirdre Michie, CEO of Oil & Gas UK, said: “We very much welcome the Chancellor’s action to enable the implementation of transferable tax history. This is a vital step which can bring in new investment to increase recovery from existing fields and fund fresh investment which is key to generating activity for our hard-pressed supply chain. It will also help extend the lives of many mature fields and postpone decommissioning.
“While there have been a number of deal announcements in the basin over the last year, these have mostly been for less mature assets, have been extremely complicated and taken a very long time to negotiate. This tax measure should help complete deals more quickly and in a more efficient way.
“Prolonging the life of mature assets better allows the industry to deploy its skills and technology to maximise extraction of the UK’s oil and gas, increasing production tax revenues to the Exchequer and securing highly-skilled jobs.
“We note the measure is intended to be effective by November 2018 and are committed to work closely with Treasury to ensure the change delivers the intended outcome.”
Currently, existing owners of oil and gas fields are unable to pass their tax history onto a buyer. This means the buyer perceives the field to be less attractive commercially, partly because they are unlikely to be able to access the same level of tax relief than the current owner when decommissioning. Enabling the transfer of tax history allows the purchaser to value the asset on a similar basis to the vendor and removes a significant barrier to asset trading. Transferable tax history will not permit the purchaser to gain greater tax relief than the vendor and will be at no net cost to the Exchequer.
Ms Michie continued: “We also welcome the Chancellor’s recommitment to the fiscal plan Driving Investment, a key request from Oil & Gas UK as it provides confidence for investors that the UKCS is a competitive basin in which to do business.”
Oil & Gas UK also notes that the Treasury has announced a technical consultation on petroleum revenue tax deductions for decommissioning and, additionally, are providing clarification on how tariff income is treated within the ring-fenced corporation tax regime. The trade body will work closely with its members and Treasury to ensure that these measures will help maximize economic recovery from the basin.