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UK upstream sector welcomes tax relief in budget

22 March 2012

Chancellor George Osborne confirmed on Wednesday that the UK’s oil industry would get guaranteed tax relief on the costs of decommissioning old rigs and platforms to boost investment in the North Sea. He also said the government would provide tax relief of £3 billion (US$4.75 billion) for new field allowances to open up the harsh environment West of the Shetlands.

The latest UK budget gives tax relief on decommissioning costs and new field allowances for harsh environment exploration and development
The latest UK budget gives tax relief on decommissioning costs and new field allowances for harsh environment exploration and development

Oil & Gas UK chief Malcolm Webb described the measures by Chancellor George Osborne as a “very significant step forward” in the country’s oil and gas industry.
“Oil & Gas UK is greatly encouraged by the package of tax measures announced by the Chancellor which together will result in tens of billions of pounds of additional investment to develop the UK's economically important oil and gas reserves, all at no net cost to the Exchequer,” said Webb.
In his Budget speech delivered to Parliament, Osborne promised to “end the uncertainty over decommissioning tax relief that has hung over the industry for years by entering into a contractual approach”
According to Decom North Sea (DNS), decommissioning projects could reach 10 a year pushing the total bill to 2040 to between £24 billion and £30 billion, and perhaps higher. Some 600 installations and associated infrastructure, 5000 wells and nearly 10,000km of pipeline will need to be decommissioned.
Derek Henderson, head of tax at auditors Deloitte said the measures would result in large investment, free up capital and put more cash in the Exchequer’s pocket.
“Deloitte anticipates [the] proposed measures will incentivise and encourage higher exploration and appraisal activity levels, brown field and new field developments and overall investment in the UK North Sea. It may also trigger further confidence in the financial markets to support UK oil and gas investment plans.
“It is likely that asset transfers and deal flow will increase especially for smaller players looking to tap into mature producing assets.”
Osborne also vowed to invest heavily in the UK’s energy future, including in renewable energies which will, he said, “play a crucial part in the UK’s energy mix”.
UK gas giant Centrica welcomed the Chancellor’s moves as “much needed encouragement for Britain’s energy industry”. 
Centrica said: “We welcome the Government's announcement of a strategy to encourage investment in new gas-fired power generation. A balanced mix of electricity generation - including gas-fired, nuclear and renewables - will support the move to a sustainable low carbon economy. It can also help meet the dual demands of security of supply and affordability.”


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