Tax breaks to save ageing North Sea rigs

OIL and gas firms buying ageing rigs and fields in the North Sea are set to get tax breaks in a bid to keep the area alive.

They are in line for extra tax relief to help pay for dismantling the rigs and shutting down wells when the oil has run out.

Politicians hope it will encourage industry to continue production in the crisis-hit North Sea, where about 36 jobs were lost every day last year.

Mark Routh, chief executive of North Sea producer Independent Oil and Gas, said: ‘This is precisely what a mature oil and gas province such as the North Sea needs to stimulate deals, increase activity and achieve higher production.’

Oil companies already get tax credits to help with the high costs of dismantling rigs, based on the amount of tax paid while the wells were running.

Under the new policy, they will be able to pass on their tax history when they sell the asset, helping the new owner claim a bigger credit.

It is particularly warranted now because oil and gas in the basin is running out and some companies want to sell wells. However, the costs of dismantling can be a major turn-off for buyers.

Industry leaders are desperate to boost production in the area which has been hammered by low oil prices. Jobs have fallen by a third since 2014 to 302,200 last year, while drilling was at record lows. Yet industry experts believe there is more than 20bn barrels of oil to be had.

Chemicals firm Ineos, which has just bought gas exploration licences in the North Sea, said: ‘We welcome today’s announcement in the budget to changes in transferable tax history. The announcement will encourage further investment in the North Sea oil and gas sector, providing a real boost to this vital industry extending its life for the benefit of the UK.’ Oil major Shell, which sold £2.8bn of North Sea assets to private equity firm Chrysaor in September, also welcomed the deal. Steve Phimister, upstream vice-president for UK and Ireland, said: ‘Maintaining a globally competitive fiscal environment is important as operators look to collaborate and to invest in the UK continental shelf.’

The oil and gas sector is expected to pay £900m in tax in the 2017-18 financial year, down from £12.4 billion in 2009. The Treasury predicts the new plans will boost coffers by £25m by 2022-23.

Deirdre Michie, chief executive of trade body Oil & Gas UK, said: ‘This is a vital step that can bring in new investment to increase recovery from existing fields.

‘It will also help extend the lives of many mature fields and postpone decommissioning.’

The plans are due to be introduced in a bill next year.