March 08, 2017

Spring Budget; a step in the right direction for oil and gas industry

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While the U.K.’s oil and gas industry was expecting little new from the Chancellor of the Exchequer’s budget Wednesday, he has provided some grounds for optimism.

Philip Hammond announced that he would investigate the use of tax incentives to make it easier for operators to sell mature oil and gas fields. This attempt to pass asset ownership from the super majors down to smaller sized players to maintain production speaks very much to the U.K.’s maximising economic recovery strategy and will also impact on decommissioning plans. However, the devil will be in the detail.

Mr. Hammond also announced that a panel of experts would be set up to examine this issue and that a discussion paper on the decommissioning tax relief system would be published.

In its business outlook report for 2017, published Tuesday, industry body Oil & Gas UK had suggested more could be done to facilitate the transfer of assets in the North Sea to stimulate additional investment. And it had called for a revision of the tax treatment of decommissioning liability.

In that context, it appears that Mr. Hammond is listening to the industry, and by the time his autumn statement is due we would expect to know more about his decommissioning tax relief plans.

And while Wednesday’s budget in itself did not deliver a great deal, when you consider Mr. Hammond’s announcements in conjunction with the tax breaks offered to the sector by his predecessor in the budgets of 2015 and 2016, there does appear to be a degree of alignment between what the industry wants and what the UK Government is prepared to provide.

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Andrew Bradshaw

Head of Energy Insight at Fifth Ring

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