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UK producers offered support worth $1.9bn by the government

The measures should result in higher production and lower tax for the industry

The UK government introduced measures to help the country’s troubled North Sea producers, in its budget in March. Chancellor of the Exchequer George Osborne said the measures amounted to £1.3 billion ($1.9bn) of support for the industry, and should result in production at the end of the decade being 15% higher than it would have been.

The supplementary charge paid on top of corporation tax — a much criticised measure — is to be cut to 20%, backdated to 1 January this year, from 30% at present. (The government had previously announced a cut to 30% from 1 January this year, from the 32% rate applying until the end of last year). But the new 20% rate only takes the supplementary charge back to the level of four years ago, and many companies had hoped for a deeper cut. 

The rate of petroleum revenue tax — only paid by older fields — is to be reduced from 50% to 35%, from 1 January next year. Because the tax was abolished for fields developed after March 1993, few fields now pay it and their output is low. 

The government is also introducing an investment allowance, which will reduce the amount of profits subject to the supplementary charge. From 1 April this year, 62.5% of investment expenditure will be allowed as a reduction against profits. 

With oil and gas producers paying ring-fenced corporation tax at 30% — higher than the rate for all other businesses — the new rate for the supplementary charge results in a combined tax take at the margin of 50%. For companies additionally paying petroleum revenue tax, the combined tax take at the margin becomes 67.5%.

In a measure aimed at checking the decline in drilling in UK waters, the government is to pay for seismic surveys over under-explored areas of the UK continental shelf. The new industry regulator, the Oil and Gas Authority, is to be allocated £20 million to commission seismic and other work. 

The incentives were welcomed by Oil & Gas UK, the producers’ and suppliers’ organisation, which said they “lay the foundations for the regeneration of the UK North Sea”. Together with its cost-reduction initiatives, the organisation estimates that the measures “could incentivise an additional £4bn of capital investment, enabling the development of 500m barrels of oil-equivalent of reserves”, worth £20bn. 

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