Oil and gas changes

Various changes to the oil and gas tax regime have been proposed following the recent consultation on 'Supporting Investment in the North Sea'.

The changes include the following:

∙ A new 'Field Allowance': intended to support investment in specific projects where the supplementary charge makes the project return marginal or uneconomic. Specifically targeted are small fields (less than 3.5 m tonnes), heavy oil fields and high pressure high temperature fields. A defined level of income from each qualifying project will be exempted from supplementary charge, resulting in a reduction in the overall tax liability suffered on the profits arising from the project.

∙ Removal of tax barriers to 'change of use' activities: oil and gas tax legislation has evolved in a manner not conducive to allowing infrastructure to be reused for non-oil activity, such as wind power, carbon capture and gas storage activities, and the Chancellor has confirmed that changes will be made to remedy this. Changes to the PRT rules on decommissioning relief, tariff receipts and deemed disposal receipts, and to the CT rules on decommissioning relief, will be made to remove tax disincentives to'change of use' projects. In addition, HMRC has given confirmation that they agree 'cushion gas' required for gas storage activities can be treated as plant for capital allowance purposes.

∙ Chargeable gains changes: ring-fence asset disposals will be exempt from CGT if the proceeds are reinvested in acquiring new ring-fence assets, and swaps of developed licences where no consideration changes hands will not give rise to chargeable gains. The reinvestment relief extends the 'hold-over relief' currently available on licence disposals to a full exemption, and the relief for developed licence swaps extends the relief currently available for swaps of undeveloped licences.

∙ Some PRT simplification measures and technical changes to PRT relief for decommissioning costs have also been proposed.

It was an almost impossible task for the Chancellor to strike the right balance, especially when he could not afford to introduce measures which reduce the Government take from the sector when the public finances are in such a dire state. The measures announced today by the Chancellor will largely be welcomed by the industry. However, they offer no incentive for existing producing fields where investment is failing most rapidly. These are the fields which in many instances still suffer tax rates of 75% and where many investors have slashed their capex budgets. This Budget, not surprisingly but nevertheless disappointingly, offers no incentive for such fields and that does not bode well for the short to medium term for the sector.