Shale gas exploration gets massive tax cut in UK

Source:Platts

Shale gas exploration gets massive tax cut in UK The UK government has proposed to cut the tax rate on income for UK shale gas production by more than half to 30% in order to encourage investment in the nascent industry, it announced Friday.

The plans for the so-called "pad allowance," which would drop the production income for companies from 62% to 30%, is subject to consultation, and is based on existing field allowances for oil and gas production.

"This option recognizes the high upfront costs associated with shale gas projects and ensures that the greatest support is offered to the industry in its early stages when costs per pad are likely to be highest," the consultation paper said.

As well as incentivising early investment, it is designed to maximize the economic production of the UK's reserves, ensure a fair return to the taxpayer and allow the potential for communities to share in the benefits, the government said.

"This new tax regime, which I want to make the most generous for shale in the world, will contribute to that," finance minister George Osborne said.

As the industry develops, the appropriate level of tax allowance will continue to be assessed, the government said Thursday in response to a report by the Energy and Climate Change Committee.

Francis Egan, the chief executive of UK shale gas pioneer Cuadrilla, said Friday: "Cuadrilla welcomes the publication of the government's consultation proposed tax regime for the emerging shale gas industry. We will need to carefully consider the details in full regarding what these mean for Cuadrilla. Whilst we are still in the exploration phase, we believe that shale gas has the potential to make a considerable contribution to the UK's energy supply and security, while at the same time creating thousands of jobs and generating very significant tax revenues and community benefits."

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