UK government proposes tax incentives for shale gas E&P

The UK government continues working toward offering tax breaks to encourage shale gas exploration and production, and the proposed measures could make onshore shale exploration more attractive to oil and gas companies already operating offshore UK, a Deloitte spokesman said.

UK Chancellor George Osborne discussed the incentives in his annual budget speech to Parliament on Mar. 20.

“Shale gas is part of the future, and we want to make it happen,” Osborne said. Last year, Osborne announced a push for gas development in his Autumn Statement.

The UK government lifted a temporary moratorium on hydraulic fracturing in December (OGJ Online, Dec. 13, 2012).

The fracturing mortarium was imposed temporarily while UK officials investigated events around a Cuadrilla Resources Ltd. shale-gas well near Poulton-le-Fylde in the Bowlin basin shale prospect in northwest England (OGJ Online, Nov. 3, 2011).

Roman Webber, head of Deloitte’s UK oil and gas tax division, told OGJ that the proposed tax breaks could take the form of new field allowances for specific shale plays or use existing incentives for UK upstream that would be extended to include shale gas.

“It’s an indication that unconventional, particularly shale gas, would remain in the existing framework of the UK taxation, and this is important because it allows for writeoff costs,” Webber said. “This would be good news for companies that are looking to develop shale gas in the UK and have UK North Sea production income.”

More details will be outlined in a document the government expects to make public in June, July, or August. Oil companies then will have an opportunity to respond to the proposals, Osborne said.

Osborne also promised new planning guidance and incentives for local communities, which the government hopes will ease public opposition to the use of fracturing.

“Tax is just one piece of the puzzle that needs to be addressed,” for UK shale gas to be developed, Webber said. When asked about a possible timeline, Webber said he believes it’s possible the proposed incentives could be finalized, passed by Parliament, and implemented sometime in 2014.

Cuadrilla Resources estimates 200 tcf of natural gas in place at its exploration license area in the Bowland basin shale. This year, Cuadrilla Resources said it was delaying fracturing until 2014 to give the company time to get an environment assessment done (OGJ Online, Mar. 14, 2013).

Contact Paula Dittrick at paulad@ogjonline.com.

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