UK Opens Forum Concerning Royalty Tax

The U.K. government has opened a consultation on abolishing the 12.5% royalty on offshore oil and natural gas companies. The consultation closes October 4 and a date for abolishing the royalty will be announced "soon afterwards," according to the Department of Trade and Industry. "The measure would be worth around GBP200 million in the next year to licensees," Energy Minister Brian Wilson said. "A number of dates for abolition have already been suggested and we are studying these closely." The government's failure to set a date for the abolition of the royalty drew criticism from the U.K. Offshore Operators Association, which said continued uncertainty would threaten the timing of new investment of up to GBP2 billion in mature oil and gas fields. "There is no need for a consultation on royalty abolition and this tax should be withdrawn as soon as possible," UKOOA Director of Communications Steve Harris said in a statement. "Delay will only prolong uncertainty and investors will think twice about committing new capital for drilling and redevelopment in mature fields until a firm date is set."

The government announced its plan to abolish the royalty - which applies only to companies that have been operating in the U.K. since before April 1982 - in April when it released the budget.

The royalty is based on the gross value of oil and gas derived from a particular license area, minus costs associated with the conveying, treating and initial storage of the oil and gas.