Investment package a significant boost to the oil and gas industry

By: Alan McCrae

Against a backdrop of maturing oil fields, high production costs, an extremely complex tax regime and low oil prices, the eyes of the oil and gas sector were firmly on the Chancellor to stimulate investment and halt decline.

George Osborne has responded to the gauntlet thrown down by industry and the new regulator, with a £1.3bn package which includes a 10% drop in the headline supplementary rate, backdated to January and bringing it down from 62% to 50%.  This will be seen as a significant boost to the industry as will news of a 15% cut in PRT to 35%, enhancing support for older fields which will now have a reduced headline tax rate. 

This brings the headline rates for oil and gas fields down from 62% to 50% and 81% to 67.5% for the older fields that are subject to PRT.  Investment in seismic surveys in under-explored areas of the UK continental shelf (UKCS) is another area that the Government is investing in, which has been welcomed in the industry for its innovation.

Offering a 62.5% uplift in CAPEX, the much-trailed Investment Allowance will be another shot in the arm for the industry, encouraging North Sea investment and replacing numerous complex allowances that had previously existed.

These measures should hold the wolves from the door for now, but if oil prices deteriorate or remain low for longer than firms can bear, then something more radical may need to be done if investment and jobs are to be protected.

Nevertheless, it’s crucial that these measures aren’t seen as a tax break for oil companies, which will still face a tax rate, in some cases, of more than three times that of other sectors. This simply recognises the changing profile of the UK basin and, in the longer term, will help ensure the best return for the UK taxpayer.