New tax measures aimed at making it more attractive for North Sea oil and gas assets to change hands have been welcomed by industry.
In his Budget statement made in the UK Parliament yesterday (22 November), the Chancellor of the Exchequer Philip Hammond, announced a tax measure that will enable the tax losses on an asset to be transferred to a new owner when it's sold.
The change will be introduced in November 2018. Currently, new entrants only receive decommissioning tax relief on future profits - this is a way of off setting decommissioning costs against taxes paid on profits. The new rules will allow them to claim additional decommissioning tax relief based on the tax history of previous owners, not just their own.
Fiona Legate, a senior analyst with Wood Mackenzie's North Sea upstream team, says: “The UK is the first country to bring in such a measure and it’s likely other countries with mature hydrocarbon plays will be watching this legislation and its success closely." However, she adds: The mechanics of transferring tax history are yet to be announced, but we expect the calculations will be complex.
The move has been welcomed by industry, not least Oil & Gas UK, which has been working with HM Treasury on measures to help further unlock asset trading in the UK North Sea.
Deirdre Michie, Chief Executive of Oil & Gas UK (pictured), said: “This is a vital step that can bring in new investment to increase recovery from existing fields and fund fresh investment. It will also help extend the lives of many mature fields and postpone decommissioning.
“While there have been a number of deal announcements in the basin over the last year, these have mostly been for less mature assets, have been extremely complicated and taken a very long time to negotiate. This tax measure should help complete deals more quickly and in a more efficient way."
Independent operators have also welcomed the move. Amjad Bseisu, CEO of EnQuest, said: "It makes sense for such tax losses to be transferable with the assets as it increases the efficiency with which assets can change hands in the North Sea – it is another tool in the deal toolkit, should companies wish to use it. EnQuest has demonstrated the dramatic and positive impact on production, production efficiency and field life which can be achieved when assets move into the right hands. If drafted in the right way, these measures will be another positive step by Government in increasing the investability of the UKCS.”
Andrew Benitz, Chief Executive Officer of Jersey Oil and Gas, said: “Decommissioning is a significant factor when deciding whether to invest in the North Sea and the ability to transfer tax history for oil and gas fields is a welcome first step to help to address this concern. There is plenty of life left in the North Sea yet."
The UK Treasury has also announced a technical consultation on petroleum revenue tax deductions for decommissioning and, additionally, are providing clarification on how tariff income is treated within the ring-fenced corporation tax regime. The trade body will work closely with its members and Treasury to ensure that these measures will help maximise economic recovery from the basin.
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