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Oil and gas industry welcomes tax allowance for older fields

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A new tax allowance for certain mature oil and gas fields will shield a portion of income from the supplementary charge, HM Treasury said today, ‘encouraging companies to invest in getting the very most out of existing fields and infrastructure in the UK continental shelf’.

‘Today’s tax allowance is more good news for the North Sea, good news for jobs and good news for the broader economy. It will give companies the incentive to get the most out of older fields, creating jobs and delivering more revenue for taxpayers,’ said George Osborne, the Chancellor of the Exchequer.

The Brown Field Allowance will shield up to £250m of income in qualifying brown field projects, or £500m for projects in fields paying petroleum revenue tax, from the 32% supplementary charge, the Treasury added.

Mike Tholen, economics and commercial director at Oil & Gas UK, a representative body for the UK offshore oil and gas industry, said the announcement was ‘a strong signal of the government’s commitment to make the most of the UK’s oil and gas resources to the benefit of our energy security, the public purse and jobs’.

He added: ‘Oil & Gas UK is encouraged by the support announced for oil and gas “brown-fields” in the UK which typically have high running costs and are subject to up to 81% tax on production. This initiative will have an immediate impact in that it will help to promote investment and sustain production from many mature fields, enabling more oil and gas to be recovered from them and postponing decommissioning by a number of years.

‘The measure builds on recent constructive interventions by the Treasury and we believe in the near term it should rapidly lead to a number of new investments amounting to £2bn, create many thousands of high skilled jobs, add tax revenues of over £1.5bn and increase oil and gas recovery by 150m barrels of oil equivalent, and have a further long term impact.  We recognise this is an on-going dialogue and we will continue to engage constructively with the Treasury on appropriate means to promote investment.’

Alan McCrae, head of UK energy tax at PwC, said today’s announcement was ‘a very helpful step in the right direction’ that should be warmly welcomed by the industry and taxpayers. ‘By reducing those rates for future production from investment in existing fields, more investment will be stimulated. As well as creating jobs now, this should help future North Sea production and future tax revenues.’