UK set for ultra-HPHT field allowance

Dollars and Pounds19 March 2014, News Wires – The UK government will offer new tax breaks for ultra-high-pressure high-temperature (HPHT) fields in the North Sea, while also reviewing the tax system in operation in the major oil province.

Chancellor George Osborne, delivering the 2014 Budget on Wednesday, said he will, as had been expected, introduce a new allowance for ultra-HPHT fields as the country aims to become more competitive in terms of exports.

“One key British export is the North Sea’s oil and gas,” Osborne said.

“We will take forward all recommendations of the Wood Report and we will review the whole tax regime to make sure it is fit for the purpose of extracting every drop of oil we can.”

The government-commissioned review, carried out by industry veteran Ian Wood, called for, amongst other measures, a new UK regulator to help increase oil and gas recovery rates in the North Sea.

“We will introduce now a new allowance for ultra-HPHT fields to support billions of pounds of investment, thousands of jobs and a significant proportion of our country’s energy needs,” Osborne continued.

“Even with these measures the North Sea is a mature basin and the OBR (Office of Budget Responsibility) has today revised down the forecast tax receipts by a further £3 billion ($5 billion) over the period.”

Osborne said this should act as “a reminder of how precarious the budget of an independent Scotland would be”.

The Budget text continued: “The allowance is expected to support the development of big HPHT projects which would create and sustain thousands of jobs, provide a significant portion of UK gas demand, and generate billions of pounds of capital investment.

“The new allowance will also encourage exploration in the central North Sea and help position the UK’s supply chain to become world leading in this important new technology.”

Commenting on the ultra-HPHT field allowance measure, Derek Leith, head of oil and gas taxation at accountancy giant Ernst & Young, said: “The new allowance is different from its predecessors in that it is set as a percentage of capital spend including exploration and appraisal as well as development costs. As such, it is tailored more to the actual economics of the field.

“This is a significant development in the various fiscal incentives introduced to stimulate North Sea investment following increases in Supplementary Charge in 2006 and 2011.

“For the first time in an offshore context we have an allowance which is given directly in proportion to capital spend. This can be seen as the way forward for such allowances.

“It should enable the development of at least two large gas fields with related benefits to the supply chain and the UK economy as a whole.”

Calling his report to Parliament “a budget for building a resilient economy”, Osborne also pointed to the cost of industrial energy in the US – half that of in Britain – as something to replicate in order to drive more manufacturing.

– Upstream

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