Scotland, citing the plunge in oil prices, has called on the UK government to accelerate fiscal reforms aimed at encouraging investment in offshore oil and gas.
“The recent fall in the oil price increases the urgency with which reforms must be progressed,” the Scottish government said in a “discussion paper” this month.
With production from the UK Continental Shelf falling, exploration low, and costs rising, the UK government last month announced several steps to improve the allure of investments in the mature producing region (OGJ Online, Dec. 4, 2014). Prominent among the initiatives was a cut to 30% from 32% in the supplementary charge producers pay atop the 30% corporate tax on income from production begun since 1993.
In its discussion paper, the Scottish government cited its past appeals for “a fundamental change in the way oil and gas fiscal policy is formulated” and said relief measures under consideration should be made part of the UK budget of March 2015.
It called for specific measures including a general investment allowance, phased reversal of a supplementary charge increase imposed in 2011, and an exploration tax credit.
In support of the general allowance, the Scottish government noted the UK has provided about 10 field allowances lowering profits subject to the supplementary charge. While the allowances have helped some fields become commercially viable, it said, they have added to complexity of the fiscal regime.
“The design of the allowances also means that some marginal fields are not eligible for support as they do not conform to these specific physical characteristics,” it said. “In addition, the recent fall in oil prices means that some projects are no long viable even if they are eligible for the existing field allowances.”
