Tax boost to keep North Sea oil fields open
by Rachel Millard
SMALL companies could soon get tax breaks for keeping open ageing oil fields in the North Sea.
The Government is setting up a panel to consider transferring to new owners the tax relief for decommissioning fields and equipment rather than see them prematurely shut down by the oil giants.
It is hoped the move will encourage smaller companies to take over assets that do not make enough revenue for oil majors such as Shell and BP but still have years of life left in them.
Large oil and gas groups have been shifting their focus from the North Sea as resources dwindle and other parts of the world become more attractive.
Several smaller companies want to move in and eke out the estimated remaining 10bn-20bn barrels, but can be put off by the prohibitive cost of eventually dismantling the equipment and closing down the fields.
The panel will now look at transferring the seller’s tax history to the new owner so they can claim relief on decommissioning. It is expected to present its findings by the autumn budget.
Deirdre Michie, chief executive of industry body Oil and Gas UK, said: ‘As the Chancellor has indicated, the tax regime has presented some significant barriers to asset trading. These must be addressed as a matter of urgency.
‘The current tax treatment of decommissioning makes it harder for owners to sell mature assets and leads to lengthy, complicated deals. Recent deals highlight the opportunities but more transactions could be achieved if this issue is resolved.’
The panel will now consider whether the changes can take place without draining the Treasury’s coffers, which have already taken a huge hit from the falling oil price.
Andrew Benitz, chief executive of Jersey Oil and Gas, which has assets in the North Sea, said: ‘The transfer of decommissioning tax relief would be very useful for a company like us.
‘It would put us on a level playing field with the vendors and I think would probably accelerate activity in the North Sea. We do need action and it’s been long coming.’
Steve Phimister from Shell said: ‘This is another step forward in helping to meet the UK’s goal of maximising the economic recovery of oil and gas assets in the North Sea.’
Mike Tholen, upstream policy director of Oil and Gas UK, said: ‘We have raised the issue for a number of years with the Government and it shows they are trying to make sure they do the right thing.
‘We see new companies coming into the North Sea – they want to put a new lease of life into the assets. If you buy your house from someone else, you are going to spend more money on improving it.’
Energy consultancy Wood Mackenzie said: ‘Decommissioning liability has been a main issue in North Sea asset deals, and is often a reason for deals not completing. A change in the tax treatment for late-life assets should help unlock more deals.’