UK industry outlines further tax concerns

Offshore staff

LONDON -- Oil & Gas UK representatives reported to Britain’s Energy and Climate Change Committee this week on the implications of government’s recent petroleum tax increase.

CEO Malcolm Webb said: “Our primary message today was that this increasingly mature sector needs careful handling. It cannot take shocks such as the recent tax hit introduced by the Chancellor [of the Exchequer] last month. These reduce the UK’s relative attractiveness for investors who will now look to rival opportunities overseas where their capital will earn better returns.”

Webb pointed out that the UK E&P sector had suffered three major tax “hits” in the past nine years. Advance consultation on fiscal change seems to us the best way forward,” he said, “as is done currently in the Netherlands.”

He called for further discussions with the UK Treasury on the fiscal treatment of gas, which represents 46% of UK production.

“Gas prices in the UK remain below the suggested $75/bbl trigger price (set by the government for suspending the tax rises), yet bear similar costs to oil for extraction. The tax increase will inevitably deter new investment in the UK’s gas resources which will increase our reliance on more expensive imported gas…

“Second, we need to find means to re-incentivize investment in the UK’s oil and gas developments. The existing field allowances should be increased and new allowances introduced such as for oil and gas prospects west of Shetland and mature, pre-1993 fields that pay the additional Petroleum Revenue Tax (PRT) on top of corporation tax and the supplementary corporation tax. Doing so will reduce the risk that these fields will be decommissioned in the near future and their infrastructure removed, limiting the industry’s ability to recover small remaining reserves of oil and gas nearby.”

Webb and his colleagues also voiced concern over the Budget move to cap decommissioning relief at a rate lower than the tax charge.

“This new development raises significant concerns regarding Government’s future intentions,” he suggested. “Given government has offered to engage on decommissioning, Oil & Gas believe it is appropriate to postpone implementation of the proposed restriction on decommissioning reliefs and bring all the issues together under the remit of the joint Treasury/Industry consultation for resolution by Budget 2012.”


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