New pipelines carrying third party production will benefit from changes to the U.K. Petroleum Revenue Tax system announced Nov. 30.
In unveiling Britain's second budget this year, Chancellor Kenneth Clarke said companies could pay tax on a portion of pipeline construction costs.
In return, pipeline owners will receive tax free tariffs for pipeline use by third parties producing from new fields after Jan. 1, 1996.
The March budget abolished tax relief on pipeline tariffs paid by new field partners (OGJ, Mar. 22, p. 31).
CATS PROTEST
This latest government amendment of budget measures came after Amoco (U.K.) Ltd. and partners in the Central Area Transmission System (CATS) pipeline protested.
Earlier lobbying by operators against abolition of exploration and appraisal drilling tax allowances forced a compromise on transitional relief (OGJ, June 21, p. 22).
The CATS pipeline carries gas from North Sea Everest and Lomond fields to an onshore terminal. Gas is then transported by pipeline a short distance to feed a power station on Teesside.
"Participants in the CATS pipeline were concerned that the economics of this project would be particularly affected," said Wood Mackenzie Consultants Ltd., Edinburgh.
"They argued that they would find it more difficult to compete for tariffing business against pipelines of future fields which, unlike CATS, would not pay PRT on tariff receipts.
"The CATS pipeline has been designed with substantial spare capacity to allow it to transport a significant amount of production from tariff paying fields."
The new budget also contained a provision preventing companies avoiding PRT by transferring a tariff earning asset from a taxable field held by one company to a tax exempt field owned by an affiliate.
"Under existing PRT rules, this transfer could have been arranged so that there would be little or no claw-back of PRT allowances on the transfer, and future tariff income would be outside PRT," said Ernst & Young, London.
"In future all such transfers will have to take place at market value for PRT purposes."
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