UK Treasury proposes North Sea tax rules revamp

The UK government, in a paper released on Dec. 6, has unveiled proposals to shake up decommissioning rules and tax rules for the UK North Sea to encourage continuous investment in the mature area.

Uchenna Izundu
International Editor

LONDON, Dec. 6 -- The UK government, in a paper released on Dec. 6, has unveiled proposals to shake up decommissioning rules and tax rules for the UK North Sea to encourage continuous investment in the mature area.

"It is intended that these changes are formally announced in Budget 2008 and legislated on in Finance Bill 2008," said a Treasury official.

The government plans to drop the time limit that encourages companies to decommission early so they can continue with production. North Sea oil and gas fields developed before 1993 are liable for a 50% Petroleum Revenue Tax.

Many operators feel that the PRT is high and dissuading investment, so the government has proposed removing PRT nonpayers from future exposure to the tax if it is satisfied that the field is unlikely to ever pay PRT.

The measure would simplify asset transfers by removing the complications surrounding PRT, the government said. "Evidence exists that some new entrants into the North Sea are not willing to become involved or invest in PRT fields, even if they are unlikely to ever pay PRT, due to the perception of there still being the potential, however remote, for these being higher taxed and imposing a greater administrative burden."

Trade organization Oil and Gas UK welcomed the suggestions, for which the government is seeking comments by the end of January 2008. It said there also are inconsistencies regarding the application of PRT to decommissioning liabilities and tax relief.

Malcolm Webb, Oil & Gas UK's chief executive, said: "The changes proposed so far should help to extend the life of many fields and facilitate the transfer of assets. However, we believe the future of the North Sea can only be properly secured by reducing the overall tax burden to ensure investment can be sustained in this mature and challenging province."

The government has launched another consultation on the tax burden facing operators because it fears this will stop forthcoming investment. The deadline to submit comments on this and other issues is June 2008.

Contact Uchenna Izundu at uchennai@pennwell.com.

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