Norman Lamont, British chancellor of the exchequer, has surprised U.K. oil and gas producers with major reforms to the U.K. petroleum tax regime.
The petroleum revenue tax (PRT) on existing fields is to fall to 50% from 75% July 1, while new fields will be liable only for standard corporation tax at 33%. However, exploration and appraisal allowances will be scrapped.
"As the North Sea has developed, the PRT regime has become to look increasingly anachronistic," Lamont announced Mar. 16 in the U.K.'s annual budget message. "As profits in many existing fields attract a marginal tax rate of over 83%, there is little incentive for companies to keep costs under control or for additional investment in existing fields.
"Moreover, as a result of the uniquely generous allowances that are available, the exchequer is no longer getting a fair return."
PRT on new fields was abolished effective Mar. 16.
"For new fields I also intend to scrap all the allowances that go with the existing PRT system, including relief for exploration and appraisal expenditure that can be set against PRT on existing fields," said Lamont.
"But contracts entered into before today for exploration and appraisal will continue to get relief against PRT on existing fields for the next 2 years. Allowances that can be claimed within existing fields will remain essentially unchanged."
U.K. Offshore Operators Association (Ukooa) warned that the changes could slow North Sea exploration.
Large North Sea operators, which pay a great deal of tax on producing fields, will benefit from the changes, Ukooa said. But smaller operators, which help fund their drilling programs by reclaiming tax on producing assets, could be hit hard.
Copyright 1993 Oil & Gas Journal. All Rights Reserved.
