Budget offers new lease of life for UK oil and gas industry - EY
EY welcomes Hammond's changes to the UK oil and gas tax legislation.
Today the Chancellor announced his intention to make changes to the UK oil and gas tax legislation to encourage investment in mature oil and gas fields which have the potential to make a significant, positive impact on the industry. The proposals should enable interests in oil and gas fields to be passed to companies with a focus on late life production who can both extend the life of the field and reduce the costs of decommissioning. In order to achieve this policy objective a portion of the corporate tax history of the seller will require to be passed to the buyer. A key design principle will be that the Exchequer is not exposed to bearing a greater portion of the cost of decommissioning.
Derek Leith, EY’s Head of Oil and Gas Tax, comments on oil and gas:
“Today’s announcement by the Chancellor represents an unprecedented change to UK oil and gas tax law and is a clear demonstration that the government wishes to maximise the value of the UK’s remaining hydrocarbon reserves.
“The proposed changes, the details of which will be worked through in 2018, have the potential to revitalise the UK oil and gas industry. They will enable the current owners of mature producing fields to pass some of the corporate tax history of the current owner to the buyer, thus enabling the buyer to be in broadly the same tax position as the seller. This should have the effect of enabling new or recent entrants to the UK Continental Shelf (UKCS) to bid for mature assets which no longer attract investment from their current owners who allocate capital to large projects in less mature basins. A key plank of government policy to maximise economic recovery and to reduce the cost of decommissioning is to get the larger mature assets in the UKCS into the hands of those companies that will focus on late life investment, extend the producing life of the assets and ultimately decommission these large fields more cheaply.
“New investment in the UKCS is the lifeblood to preserving an industry which has made a huge contribution to the UK’s economy over many decades, and supporting a supply chain focused on innovation and internationalisation.”