As part of the 2015 Budget announced today, as hoped the Chancellor has taken the opportunity to support the North Sea oil industry and build upon the new simplification principles that were set out in the Autumn Statement.
The Chancellor has announced a package of measures that has been designed to ensure continued investment in the industry. The measures are expected to lead to over £4 billion of additional investment and at least 120 million barrels of additional production of oil by 2020. This is in recognition of the economic transformation of the market since George Osborne increased the Supplementary Charge from 20% to 32% in 2011.
Tax cuts are central to the package. George Osborne announced that Petroleum Revenue Tax will be cut by 15% to 35% and the Supplementary Charge will also be reduced to 20%. Both are measures which have been campaigned for and will be well received by the industry.
A new basin-wide investment allowance will also be introduced and the existing field allowances will be abolished. The new allowance will exempt a portion of a company’s profits from the Supplementary Charge. According to the Budget documents, the amount of profit which the allowance will exempt will equal 62.5% of the investment expenditure a company incurs. The government consulted on this relief at the beginning of the year and we expect further details on the mechanics of the relief to be included in the government’s formal response to the consultation document. Draft legislation should also be published shortly.
It was also announced that following the Wood Review the government will provide £20 million for seismic and other geographic surveys to boost offshore exploration in unexplored areas of the UK Continental Shelf and will charge the Oil and Gas Authority with the task of scrutinising companies’ decommissioning plans to ensure these are cost effective.
This is all welcome news to those involved in the oil and gas industry and provides appropriate support in line with the current economic climate.