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The Chancellor of the Exchequer has today announced a new tax
measure aimed at supporting billions of pounds of new investment in
older oil and gas fields in the North Sea, increasing tax revenues
from the industry.
A tax allowance for certain mature fields, known as brown fields,
will shield a portion of income from the Supplementary Charge,
encouraging companies to invest in getting the very most out of
existing fields and infrastructure in the UK Continental Shelf.
The news comes on top of other ambitious announcements this year
aimed at stimulating billions of pounds worth of investment and job
creation in the North Sea, and throughout the supply chain.
As well as committing to sign contracts with industry to guarantee
their long-term level of tax relief on decommissioning used assets,
the Government has this year announced the introduction or extension
of allowances for small fields, large shallow-water gas fields and
fields in the West of Shetland.
Announcing the news, the Chancellor said:
"Today's tax allowance is more good news for the North
Sea, good news for jobs and good news for the broader economy. It
will give companies the incentive to get the most out of older
fields, creating jobs and delivering more revenue for
taxpayers.
"This Government has signalled its absolute determination
to get more investment in the North Sea, a huge national asset.
Just last week, I saw the benefits at a supply chain factory
creating many hundreds of jobs in the North East thanks to
Government support for North Sea gas which made a major project
possible."
Notes for editors
1. The Brown Field Allowance will shield up to £250m
of income in qualifying brown field projects, or £500m for
projects in fields paying Petroleum Revenue Tax, from the 32%
Supplementary Charge rate (providing tax relief of up to £80m or
£160m respectively). The level of relief available to an
individual project will depend on its size and unit costs.
2. A qualifying project will be an incremental project
increasing expected production from an offshore oil or gas field as
described in a revised consent for development which is authorised by
the Department of Energy and Climate Change (DECC) on or after 7
September 2012, and has verified expected capital costs per tonne of
incremental reserves in excess of £60. The maximum level of
allowance will be £50/tonne and will be available to projects
with verified expected capital costs of £80/tonne or above.
3. The long-term tax revenues this generates are expected
to significantly outweigh the initial cost of the allowance. The
Office for Budget Responsibility will publish the full scorecard
costings of this measure over the forecast period at the time of its
autumn forecast. Initial estimations are that the change will cost
around £100m a year in the forecast period.
_______________________________
Written Ministerial Statement
The Economic Secretary to the Treasury (Sajid Javid): The
Government is today announcing that it will introduce a Brown Field
Allowance for companies undertaking additional development in certain
older fields in the UK Continental Shelf.
This follows the announcement at Budget 2012 that the Government
would introduce legislation in Finance Bill 2012 giving it the power
to introduce targeted measures to support investment in brown fields.
The Government also committed to engage further with industry on how
any such allowance could be structured to unlock investment while
protecting Exchequer revenues. This legislation was agreed by the
House and was given Royal Assent on 17 July 2012.
This allowance will encourage companies to continue investing in
vital North Sea infrastructure, and to get the most out of ageing
assets. It comes on top of the ambitious package of measures that the
Government has already announced this year to support investment in
the UK Continental Shelf.
The allowance will shield a portion of income in fields with
qualifying projects from the 32% Supplementary Charge rate, and will
be available from the accounting period in which incremental
production from the qualifying project is expected to start. A
qualifying project will be an incremental project increasing expected
production from an offshore oil or gas field as described in a
revised consent for development which is authorised by the Department
of Energy and Climate Change (DECC) on or after 7 September 2012, and
has verified expected capital costs per tonne of incremental reserves
in excess of £60. Where a project forms part of a larger
development, all elements of the development must receive
authorisation consent on the same day.
The field allowance for a qualifying project will be £50 per
tonne of expected incremental reserves for projects with a verified
expected capital cost per tonne of incremental reserves of £80
or greater, with a straight-line taper to no allowance at a capital
cost of £60 per tonne, and no allowance for projects with
capital costs below that level. The maximum allowance for which a
single project can qualify will be £500m for projects in fields
paying Petroleum Revenue Tax, and £250m for other projects (i.e.
maximum tax relief of £160m and £80m respectively at the
current 32% Supplementary Charge rate).
The Government will keep under review the inclusion of projects
involving enhanced oil recovery using carbon dioxide. However, such
projects will not initially fall within the scope of the allowance
because of concerns around cost apportionment across the
upstream/downstream boundary.
Changes to the field allowance regime may be made by Order. The
Government intends to lay the necessary Order before the House of
Commons later this year.
Further detail on how cost and reserve estimates are to be
calculated for qualifying projects will be set out on the HMRC
website and in the relevant secondary legislation later this
year.
The Office for Budget Responsibility will publish the full
scorecard costings of this measure over the forecast period at the
time of its autumn forecast. Initial estimations are that the change
will cost around £100m a year in the forecast period.
As this is a new type of allowance, the Government will review its
effectiveness in 2015 to ensure that the oil and gas fiscal regime
continues to be structured in a way that stimulates investment while
ensuring a fair return for the taxpayer.
HM Treasury
7 September 2012