Centrica may keep gas field offline due to new UK taxes

May 4, 2011
Centrica PLC may permanently close its Morecombe Bay natural gas field, described as the UK’s largest, due to the new tax rates recently imposed by the British government.

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, May 4 -- Centrica PLC may permanently close its Morecombe Bay natural gas field, described as the UK’s largest, due to the new tax rates recently imposed by the British government.

"Following the increase in supplementary corporation tax in the Budget, UK oil and gas fields are now subject to some of the highest levels of tax in the world—our South Morecambe field is now taxed at 81%,” said a Centrica spokesman.

"At these higher tax rates, Morecambe's profitability can be marginal,” the spokesman said, adding, “We may choose to buy gas for our customers in the wholesale markets in preference to restarting the field after planned maintenance."

The company this week stopped production at Morecambe Bay, a reservoir in the Irish Sea 25 miles west of Blackpool that provides 6% of the UK's gas, for maintenance work that will last about a month.

Morecambe Bay is said to be a declining basin, traditionally managed by Centrica to ensure longevity of the gas reserves. Following the recent tax hike, the North Morecambe field is subject to a 62% tax rate and South Morecambe 81%.

The Centrica statement comes as oil and gas industry leaders are scheduled to make a final attempt to reverse the tax rates imposed last month by Chancellor of the Exchequer George Osborne.

Oil and gas industry representatives meeting with Parliament’s energy and climate change committee are expected to restate concerns about the impact of the tax hike on investment and jobs.

They will seek to mitigate the rise in the supplementary charge to 32% from 20% despite the fact that Osborne recently dismissed claims that offshore investment would be adversely affected by the new rates.

"The view abroad is that we have seen the kind of flip-flopping on policy in the UK that you would expect from a banana republic," said one industry representative.

The meeting with the committee is said to be the last formal outlet for the UK’s oil and gas industry to make its views known before Osborne’s tax hike is written into the Finance Act now moving through Parliament.

Last week, Royal Dutch Shell PLC said it might have to sell some of its assets in the North Sea and reduce investment in the region due to the recent tax increases imposed by the British government (OGJ Online, Apr. 29, 2011).

Contact Eric Watkins at [email protected].