The UK government will introduce tax changes from November 2018 to encourage new entrants and fresh investments into the mature fields of the UK Continental Shelf in the North Sea, according to the Treasury's Autumn Budget 2017 unveiled on Wednesday.
Under the proposed Autumn Budget, the UK will introduce a transferable tax history mechanism for UK oil producers for deals that complete on or after November 1, 2018.
That transferable tax history will allow companies that sell oil and gas fields in the North Sea to transfer some of their tax payment history to the buyers of those fields. The buyers, then, will be able to set the decommissioning costs for the fields against the transferable tax history (THH) and thus claim greater tax relief.
"This would provide the buyer with certainty that they will be able to access tax relief on their decommissioning costs, putting them on a similar footing to the seller. This would help encourage transactions, helping to protect jobs and maximise economic recovery from the UKCS," according to the Treasury's rationale for introducing the tax change.
"This will level the playing field between buyers and sellers of oil and gas fields, providing new investors in the UK Continental Shelf with certainty on the tax relief available for the decommissioning costs. This should encourage new entrants and fresh investment for a basin that still holds up to 20 billion barrels of oil," the UK Treasury said.
Related: Europe's Toxic Radiation Cloud Remains A Mystery
Trade body Oil & Gas UK welcomed the proposal, and its chief executive Deirdre Michie said:
"This is a vital step that can bring in new investment to increase recovery from existing fields and fund fresh investment which is key to generating activity for our hard-pressed supply chain. 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," Michie noted.
By Tsvetana Paraskova for Oilprice.com
More Top Reads From Oilprice.com:
Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More