Chancellor Helps UK Oil Industry with 'Innovative' Tax Policy
The Chancellor of the Exchequer, Philip Hammond, has pledged to help the UK oil and gas industry by delivering an ‘innovative’ tax policy from November 2018.
“We will introduce transferrable tax history for transfers of oil and gas fields in the North Sea,” said Hammond in his 2017 Budget speech.
Hammond said the tax policy will ‘encourage new entrants to bring fresh investment to a basin that still holds up to 20 billion barrels of oil’.
Currently in the UK oil and gas sector, the history of tax paid remains with an asset’s original owner, even when the asset is sold.
As a result, buyers can perceive fields to be less attractive commercially, partly because they are unlikely to be able to access the same level of tax relief as the current owner when decommissioning. A transferable tax history will allow buyers to value assets on a similar basis to vendors.
Commenting on the 2017 Budget, Oil & Gas UK chief executive Deirdre Michie said the group welcomed the Chancellor’s action to enable the implementation of transferable tax history.
“This is a vital step that 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,” Michie said in a statement sent to Rigzone.
“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,” she added.
“Prolonging the life of mature assets better allows the industry to deploy its skills and technology to maximize extraction of the UK’s oil and gas, increasing production tax revenues to the Exchequer and securing highly-skilled jobs,” Michie added.
Kevin Swann, Wood Mackenzie’s senior analyst for North Sea upstream said the announcement to bring in legislation to allow the transfer of tax histories was a positive move for the ‘ultra-mature UKCS’.
Fiona Legate, also a senior analyst with Wood Mackenzie's North Sea upstream team, said the intricacies of the policy were expected to be complex.
“The mechanics of transferring tax history are yet to be announced, but we expect the calculations will be complex. The UK is the first country to bring in such a measure and it’s likely other countries with mature hydrocarbon plays will be watching this legislation and its success closely,” Legate said in a statement sent to Rigzone.
Michael Burns, oil and gas partner at law firm Ashurst, said the commitment to introduce the new tax policy was excellent news for the UK oil and gas industry.
“Decommissioning is one of the most significant challenges in agreeing valuations on merger and acquisition deals that bring new investment into the sector. To implement the concept of a transferable tax history will provide a useful additional tool in the armoury to help bridge valuation divides,” Burns said in a statement sent to Rigzone.
Ashurst tax partner, Nick Gardner, said the market for late life assets should be expanded by the ability to transfer tax history.
“This topic has been the subject of an extended dialogue between HMRC and HM Treasury and the oil and gas industry and it is encouraging to see that this has borne fruit,” Gardner told Rigzone.
Derek Leith, senior partner at EY Aberdeen, said on his Twitter page that the policy’s deferral to 2018 may be disappointing, but highlighted the importance of getting a clear commitment to introduce the measure.
Ross Thomson MP, the Scottish Conservative member of parliament for Aberdeen South, said the policy would extend the life of fields, delay decommissioning, bring in new investment and maximize economic recovery in the North Sea.
The Chancellor @PhilipHammondUK confirms Transferable Tax History for the oil and gas industry which will extend the life of fields, delay decommissioning, bring in new investment and maximise economic recovery in the North Sea. Another @ScotTories achievement #Budget2017— Ross Thomson MP (@RossThomson_MP) 22 November 2017
Prior to the 2017 Budget, Oil & Gas UK campaigned for the introduction of transferable tax history.
“Enabling tax history to be transferred between seller and buyer will ensure we encourage investment into late life, but still highly productive, assets and so help to extend the life of the basin,” Michie said in the run up to Wednesday’s Budget announcement.
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