The UK government has responded to calls for tax relief from the oil and gas industry by trimming the “supplemental charge” applicable to most production (OGJ Online, July 14, 2014).
In a major fiscal speech to Parliament, Chancellor George Osborne announced the supplemental charge rate would be cut to 30% from 32%. Producers pay the charge in addition to a 30% corporate tax on production begun since 1993. Field allowances reduce the supplemental charge on production from small and technically challenging fields.
Osborne said the government also would extend the “ring fenced expenditure supplement” to 10 years from 6 years for offshore fields. The supplement enhances the value of losses carried forward from one accounting period to the next for fields with revenue not covering expenditures. The “ring fence” isolates expenditures to specific fields so losses from one field can’t lower tax liability of another.
The chancellor also announced a “cluster area allowance,” which the trade group Oil & Gas UK said would encourage development of high-pressure, high-temperature fields.
Noting that investment in the UK North Sea set a record this year, Osborne said, “The lower oil price clearly presents a challenge to this vital industry.”
The industry has warned that high investment levels reflect major projects now nearly complete and masks problems of falling production, limited exploration, and shrinking discovery size in a mature producing region.
Oil & Gas UK called the tax cut “an important first step.”
Malcolm Webb, the group’s chief executive, said, “We will certainly need further reductions in the overall rate of tax to ensure the long-term future of the industry.”
