Fircroft: UK budget opens review of North Sea tax histories
Published: 27 Nov 2017 By Fircroft
Fircroft: During his budget speech yesterday, Chancellor of the Exchequer Philip Hammond revealed plans to introduce transferable tax history for the oil and gas industry by November 2018.
Hammond said during his speech that the measure would encourage new entrants to the North Sea and attract fresh investment.
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.
The proposed measure will allow tax credits to be transferred to the new owner when an asset is sold thus allowing the purchaser to value the asset on a similar basis to the vendor, removing a significant barrier to asset trading. The measure will also let buyers of North Sea assets to reclaim a portion of the decommissioning costs.
As expected, the measure has been warmly welcomed across the industry.
Steve Phimister, upstream vice president for the UK and Ireland at Shell, said:
“The announcement by the Chancellor is a positive step forward following evidence which was presented by the UK oil and gas sector. Maintaining a globally competitive fiscal environment is important as operators look to collaborate and invest in the UKCS.”
“Shell will continue to work with industry, the regulator and government as we seek to rejuvenate the basin and maximise recovery in the North Sea.”
Oil & Gas UK, the representative body for the UK offshore oil and gas industry, was also positive about the measure with its chief executive, Deirdre Michie, saying:
“We very much welcome 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.”
“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.”
Industry experts predict that the measure will pave the way for a flurry of deals over the coming years.
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