Tentative hopes for North Sea as Chancellor prepares Budget tax assistance

The Treasury confirmed yesterday that Philip Hammond will investigate the use of tax incentives to make it easier for operators to sell oil and gas fields, helping to keep them productive for longer.

A panel of experts will be set up to examine the issue and a discussion paper on how to help the industry will also be published.

The Treasury said the moves would further help a vital industry that meets around 50 per cent of the UK’s primary energy needs.

It said the measures would build on “unprecedented support already provided to the oil and gas sector through £2.3bn packages in the last three years”.

The move comes after the Scottish government’s finance secretary, Derek Mackay had written to the chancellor calling for “action to improve decommissioning tax relief, ensuring that the right assets are in the right hands”.

Experts in Scotland said addressing the issue of the North Sea’s finances had now become critical.

Derek Leith, EY Partner and head of oil and gas tax, said: “Tax relief for decommissioning expenditure is a critical issue for the oil and gas industry, and HM Treasury’s announcement that a panel is to be set up to consider specific aspects of the relief mechanism will be welcomed.

“It is often said that the right assets need to be in the right hands to maximise economic recovery late in the life of the North Sea. Any hindrance to new investors being able to obtain effective tax relief for decommissioning costs may create a barrier to entry for those who want to invest in the future of the basin. Changes that remove such barriers can only be positive for the industry and the associated supply chain.

“While this announcement is a clear indication that HM Treasury understands the significance of this issue, much hard work lies ahead to prove the case for change and identify a satisfactory solution that does not increase the Exchequer’s exposure to decommissioning.”

In response to the Treasury’s announcement, OGUK chief executive Deirdre Michie said: “This appears to be a positive development and we look forward to hearing more detail in the spring Budget statement.

“The sale of oil and gas fields is a complex issue and the tax regime can help facilitate the movement of assets and support maximising economic recovery.

“We have been working closely with Treasury and the Oil and Gas Authority to identify where the tax regime needs to improve.

“We hope that we can work together with Treasury and the expert panel to progress reform as soon as possible.”

UK Government minister for Scotland, Andrew Dunlop, said: “This is really positive news for Scotland’s oil and gas industry. There are very significant reserves still in the North Sea, and it is vital that the UK Government does all it can to help the industry maximise these.

“Our oil and gas industry is very much open for business, and the north-east of Scotland is a great place to invest. We need to ensure our tax regime helps support the industry in the most appropriate way.”