What the Autumn Budget Means for UK Oil and Gas
The Chancellor of the Exchequer Philip Hammond has delivered the 2018 Autumn Budget, which included several points relevant to the UK oil and gas industry.
The budget report outlined that the government is maintaining headline tax rates at their current level, which “will help the oil and gas industry continue its recovery from the 2014 oil price crash, protect jobs, and ensure the UK is attractive for new investment,” according to the budget report.
In addition, the report revealed that the government will launch a call for evidence and work together with the Oil and Gas Authority “to identify what more should be done to further strengthen Scotland and the UK’s position as a global hub for decommissioning”.
As announced at the 2017 Autumn Budget, the government will also introduce a transferable tax history mechanism in Finance Bill 2018-19 for oil and gas companies “that will remove tax barriers to new investment in the North Sea”.
The government will also amend the Petroleum Revenue Tax rules on retained decommissioning costs “to simplify the way older fields can be sold to new investors”. This will provide “further support for an industry that is a vital part of the economies of Scotland and the rest of the UK,” according to the budget report.
Industry body Oil & Gas UK welcomed the government’s commitment to maintain fiscal conditions.
“The Chancellor’s commitment to fiscal stability is welcome recognition of the hard work by industry to encourage recovery following one of the most testing downturns in its history,” Oil & Gas UK Chief Executive Deirdre Michie said in a statement sent to Rigzone.
“With reduced costs, competitive fiscal terms and improved operational performance, the UK Continental Shelf is becoming an attractive investment proposition. These conditions are delivering a tentative recovery, with more projects approved so far this year than in the last three years combined,” Michie added.
“As decommissioning activity is predicted to grow, the UK supply chain has a major opportunity to develop world-class decommissioning capabilities. We look forward to informing this exercise with our expertise and ensuring that we can maximize opportunities in decommissioning while continuing our focus on maximizing economic recovery,” Michie continued.
Derek Leith, EY’s global oil and gas lead, said the budget will be marked by the UK oil and gas industry as further confirmation that the government is serious about maximizing economic recovery from the UK’s offshore oil and gas reserves.
“Whilst the oil price has recovered from its slump of the past three years, large parts of the basin find it hard to compete for capital against more material opportunities in other jurisdictions,” Leith said in a statement sent to Rigzone.
“The direction of travel is for some of the larger multinational groups to leave the UK Continental Shelf in favor of more prospective areas and US shale and therefore it is vitally important for the government to maintain investor confidence,” he added.
Michael Burns, an oil and gas partner at law firm Ashurst, said it was “good news” that the government had listened to the oil and gas industry and maintained current levels of tax.
Alan McCrae, leader of industry for oil and gas at PwC UK, said the introduction of a transferable tax history mechanism for oil and gas companies should help facilitate the numbers of deals taking place and help breathe new life into the sector by making it more attractive to new investors.
“This will help protect and create jobs and increase investment in both the industry and local economy,” McCrae said in a statement sent to Rigzone. "Any move to position the UK as a global hub for decommissioning will also be welcomed,” he added.
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