Budget gets the thumbs up from North Sea oil companies

Two North Sea oil firms reporting results yesterday hailed the tax breaks announced in the Budget, saying they make exploration more attractive and finds more profitable.

FTSE 250 company Premier Oil, which also operates in other territories, and North Sea newcomer Trap Oil both plan to take advantage of increases to the small field allowance.

Premier chief executive Simon Lockett said Wednesday’s Budget got “a big thumbs up from us”.

“I couldn’t have wished for a better result,” he added.

He said Premier’s Solan oil field and three fields within the Catcher area will all benefit from the new measures, which increase the size of fields that can benefit from the tax breaks as well as including attempts to extract extra oil and gas from existing developments.

Tax breaks are also being offered to large fields in water depths of more than 1,000 feet, in order to stimulate exploration of the basin West of Shetland, where oil is more costly to access than in the North Sea.

Analysts at Oriel Securities said the small field allowance changes were worth more than £60 million net to Premier. A move to give oil firms certainty over the level of tax relief they will receive when they come to dismantle platforms and pipelines at the end of a field’s life should free up around £90m of extra capital for its balance sheet.

Premier reported that high oil prices helped profit after tax jump 32 per cent last year to $171.2m (£108m), ahead of City expectations. The firm said it had cash and undrawn bank facilities of around $1.4 billion in early 2012, giving it the firepower to make acquisitions and explore for oil in new areas.

Trap Oil, which floated a year ago and used half the £60m proceeds to buy Aberdeen-based Reach Oil & Gas, also expects to benefit from the expanded small fields allowance.

Finance director David Kemp said: “The small fields allowance is going to be a big help to us.”

He added that a perceived change in attitude from the Treasury should stimulate the sector and bring more companies into the market for North Sea assets.

Trap published its maiden full-year results yesterday, although it has not yet started producing oil. However, it announced on Monday that it was buying a stake in the Athena field in the central North Sea, due to start extracting oil later this year. It will give the firm cash flow to utilise exploration tax breaks and fund further drilling.

The firm expects results from its first well, Orchid, within the next 20 days.