UK offers tax boost as 26th bidding round opens

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Jan. 28 -- The British government announced a package of tax incentives worth up to £12 billion aimed at unlocking oil and gas reserves in the Atlantic frontier west of Shetland—an area estimated to contain 20% of the country’s remaining unexploited oil and gas reserves.

“The government recognizes the importance of the UK oil and gas industry to our economy and the dependable foundation it provides for the UK’s energy security,” said Chancellor of the Exchequer Alistair Darling.

“While we are trying to reduce our dependence on fossil fuels, we must and do recognize that this will be a long transition and our oil and gas reserves will continue to play a vital role in supplying our energy needs for many years to come,” Darling told members of Parliament.

“Today’s announcement will continue to support investment in the North Sea, the fuel this delivers, the contribution this makes to our economy, and the jobs and skills the industry supports and develops,” he said.

“The legislation, if approved by the House, will extend the field allowance, announced in Budget 2009, to remote deepwater gas fields, which are found in the west of Shetland area,” Darling said.

“Approval of the legislation will be sought no later than the end of March,” a Treasury spokesman said.

“One project that could stand to benefit from the allowance is the project to develop the Laggan and Tormore fields,” the Treasury spokesman said. “The project partners will consider the sanction of the project in Spring 2010.”

“If the project is sanctioned and proceeds on schedule, the first production of gas from Laggan and Tormore is expected by 2014," the spokesman said.

Malcolm Webb, chief executive of Oil & Gas UK, welcomed the announcement as a response to his organization’s calls for support from the government.

“While we still have to study the details, we are delighted that the government has responded to our calls for the allowance to be extended to the West of Shetland area,” Webb said.

“This could result in early investment of over £2 billion and another £12 billion over the next 8 years, ultimately bringing almost 2 billion [boe] of oil and gas into production,” Webb told the Scotsman newspaper.

“The establishment of this gas-delivery infrastructure will stimulate exploration as it will enhance the viability of future discoveries in this frontier area,” said Webb.

Offshore leasing round
The tax incentive coincided with an announcement by Britain’s Department of Energy and Climate Change of a new round of offshore licensing aimed at giving a further boost to the UK's offshore oil and gas industries.

“This record-breaking 26th Round includes areas of the Continental Shelf not as yet explored, and will provide a new boost to activity in the basin,” said Britain’s Energy and Climate Change Minister Lord Hunt.

“The round will help to secure the future of the UK's oil and gas industry which still provides three quarters of our energy needs and some 350,000 jobs,” Hunt said.

“Estimates suggest there are still around 20 billion boe, or possibly more, to be produced, and this latest licensing round will help ensure we realize this potential,” he said.

“As we make the transition to a low-carbon future, we must ensure we have secure energy supplies by making the best use of our indigenous energy resources in a safe and environmentally sound way,” he said.

The blocks offered include a number relinquished under the government and industry's “Fallow Initiative,” which stimulates activity on blocks where there had been no significant activity for three years.

The 14 blocks that were deemed as fallow in 2009 have either been fully, or partly, relinquished in time to be on offer in this round.

In addition, the ministry said that “the majority of areas licensed in the first licensing round in 1964 that have not been allowed extensions have been relinquished and are included for offer in the 26th Round.”

The ministry also said the government has introduced “a new frontier license with an extended 9-year exploration term for the West of Scotland area, which aims to encourage oil and gas exploration in an area in which geological data is as yet scant.”

Contact Eric Watkins at hippalus@yahoo.com.

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