UK Treasury moderates tax for new investors

July 5, 2011
New entrants to the UK Continental Shelf received a tax incentive July 5 when the UK government increased a tax allowance for marginal fields.

By OGJ editors
HOUSTON, July 5
-- New entrants to the UK Continental Shelf received a tax incentive July 5 when the UK government increased a tax allowance for marginal fields.

The UK Treasury said the Ring Fence Expenditure Supplement will rise to 10% from 6%, enabling companies to offset a greater amount of expenses against taxes.

Oil & Gas UK called the move constructive and an “encouraging first sign” but cautioned that it “will not redress the damage caused by the recent tax increase.” It said the relief will help new investors to the UKCS who are otherwise disadvantaged compared with more established players.

Norway’s Statoil AS said July 5 it will reactivate plans for the Mariner and Bressay development, $10 billion in projects it postponed when the government included a large tax hike on the industry in its 2011 budget.

Earlier this year the UK Treasury announced a new top tax rate of 81% and a new lower limit of 62% on UK oil and gas production and capped companies’ ability to claim tax relief for decommissioning at the old tax rates. A University of Aberdeen study found that substantial long-term reductions in field investment and oil and gas production that would result (OGJ Online, May 6, 2011).

In making the ring fence change, the government “appears to acknowledge that the increase in supplementary corporation tax announced in this year’s budget has made the UK less competitive,” Oil & Gas UK said.

Malcolm Webb, Oil & Gas UK’s chief executive, said: “We made it clear after the budget that government actions and not just words would be required to begin to rebuild trust and restore the confidence of investors. This will help some new players but much more action is needed including on other reliefs and on the important decommissioning problem in the light of the budget.”