George Osborne’s budget has tried to throw North Sea oil producers a tax lifeline.
In his speech the Chancellor of the Exchequer said he is effectively abolishing the petroleum revenue tax, and he promised to cut the supplementary charge on oil and gas in half to 10%.
Against the back-drop of the lowest crude oil prices for a generation, the government has decided to back-date the new changes to the start of 2016.
Politicking, Osborne said the tax breaks for the offshore sector were only affordable because Scotland rejected independence and was still part of the United Kingdom.
Independent North Sea oil producers Parkmead Group (LON:PMG) and Ithaca Energy (LON:IAE) rose 8.87% and 6.9% to trade at 67.5p and 31p respectively.
Ian McLelland, analyst at Edison Investment Research, highlighted that the tax reductions in themselves won’t be enough to stimulate North Sea investment, because so many companies are ‘in the red’.
He said: “today’s proposals increasing the scope of income/costs that qualify for investment allowances, clarification of decommissioning expenditure relief and ring-fence treatment of corporate interest are all encouragingly progressive.
“Claims that the ‘UK has one of the most competitive tax regimes for oil and gas in the world’ are still well off the mark; in particular we would have welcomed a Norwegian style approach to directly co-fund exploration while protecting the downside risk for developers.
“The future of the North Sea is hanging on a cliff-edge and the UK Government needs to continue to promote exploration, development and infrastructure to safeguard the industry, security of supply and jobs.”
It was also revealed today that the government would be consulting on the Shale Wealth Fund, and its deployment in local communities and the north of England as a whole.
Details of the fund were released in November 2015, as part of last year’s Autumn statement. It was indicated then that 10% of tax revenues from UK shale projects, up to a maximum of £10mln per well site, would be paid into the fund.
According to industry group, United Kingdom Onshore Oil and Gas (UKOOG), the fund could be worth up to £1 billion over 25 years to local communities.