Oil & Gas UK, a trade association for the UK offshore oil and gas industry, has made its final case for a tax change ahead of the UK Autumn Budget set to be presented to Parliament on Wednesday.
The UK Government has a limited window of opportunity to introduce a tax change with the Budget that could save the UK taxpayer millions of pounds by deferring the decommissioning of mature oil and gas fields, Oil & Gas UK said on Sunday.
The trade body believes it is vital that the tax history is transferred from seller to buyer when UK North Sea assets are sold on.
Enabling transferable tax history in the upcoming Autumn Budget would attract new investors and help unlock more deals in late life assets in the UK North Sea, said the trade body. This could prolong the life of mature fields by many years and save Treasury an average of £10 million per asset in deferred tax relief.
Currently, the history of tax paid remains with the asset’s original owner even if the asset changes hands. But tax paid has a bearing on final decommissioning costs when the asset comes to the end of its productive life.
Oil & Gas UK analysis of 23 UK asset transfers since 2011 reveal that deals have extended field life by almost five years on average. Some fields have gone on producing for up to an extra 14 years, generating additional value to the Exchequer and providing continued highly skilled employment across the UK.
Deirdre Michie, Chief Executive of Oil & Gas UK, said: “Enabling tax history to be transferred between seller and buyer will ensure we encourage investment into late life but still highly productive assets and so help to extend the life of the basin.
“Transferable tax history would boost the number of mature field deals we are seeing in the North Sea. This, in turn, would help bring fresh investment into the basin, generate new production and provide extra tax revenues for Treasury.
“Mature assets are attracting interest from investors who see the competitive opportunity that the UKCS continues to offer. However, the current tax position is proving to be a blocker to potential deals and that is why it is important that HMT acts to facilitate and support further deals. With decommissioning activity forecast on 214 fields on the UK Continental Shelf to 2025, there is no time to waste.”
Oil & Gas UK and industry has had discussions with government officials and has also set out its requests of HMT in a letter to Chancellor Phillip Hammond.
Michie added: “Government has done a great deal to improve the fiscal regime and helped to make the UK Continental Shelf one of the most fiscally competitive oil and gas regimes in the world.
“We believe we’ve made a compelling, evidence backed case for transferable tax history to be provided for by Treasury and now hope that they do what is needed to prolong the life of the North Sea which still holds billions of barrels of oil and gas and still supports hundreds of thousands of UK jobs.”