North Sea firms welcome £50m tax U-turn after big Budget grab

THE government has moved to appease oil and gas companies with a new tax break for exploration after its £10 billion tax grab on the industry in the Budget.

The concession, worth about £50 million, was welcomed by the industry and had the immediate effect of the Norwegian oil giant Statoil reversing its suspension of work on the Mariner field which was thought to be worth $10bn.

The Treasury announced it was providing additional support for investment in the North Sea through an extension of the ring fence expenditure supplement (RFES) aimed at helping producers operating in marginal fields.

This followed severe criticism from the industry and senior coalition back-benchers as well as the Scottish Government of George Osborne for increasing the tax on oil profits from 20 per cent to 32 per cent.

The tax grab worth £2bn a year was designed to help pay for keeping fuel duty down at a time of rising oil prices.

Lib Dem Chief Secretary to the Treasury Danny Alexander, who claimed credit for the fuel duty stabiliser, said that the new tax break would deal with the problems of future investment. He said: “This is good news for Scotland as it will improve the prospects for marginal projects in the North Sea, helping to support investments and jobs.

“The changes we made in the Budget cut 6p off a litre of fuel at a time when hard-pressed motorists were feeling the pinch. But recognising the importance of continued investment in the North Sea, I said at the time of the Budget that we would listen to specific issues raised by the industry, and we have.”

Last month, Centrica also announced it was suspending production in its South Morecambe gas field saying the tax hike meant it was no longer economical.

The Treasury said the extension of the RFES from 6 per cent to 10 per cent was intended to ensure the existing system of allowances worked “more effectively and equitably”, supporting investment in marginal fields.

Statoil had suspended $10bn worth of projects off Britain, but yesterday said it would resume work on them before making a final investment decision at the end of next year, while Centrica said it resumed output at the South Morecambe field on Friday.

“With this announcement today, the negative tax impact has been neutralised,” a Statoil spokesman said. “We’re now able to move forward at full speed with the technical and commercial work we need to do before a final announcement is made.”

The move was welcomed across the industry, which had been taken by surprise by Mr Osborne’s announcement in March.

Malcolm Webb, the chief executive of Oil & Gas UK, said: “This is a first step in the right direction. We made it clear after the Budget that government actions and not just words would be required to begin to rebuild trust and restore the confidence of investors.

“This will help some new players but much more action is needed including on other reliefs and on the important decommissioning problem in the light of the Budget. However, this has to be seen as an encouraging first sign of some real progress.”

Yesterday, SNP Treasury spokesman Stewart Hosie claimed the announcement was an admission by the government that it had got it wrong in the Budget. “They have realised that they almost killed the goose that lays the golden egg because of the way they handled the whole decision,” he said.

Scottish Secretary Michael Moore said: “The government has taken a positive step for the future of oil and gas exploration and is acting on the pledges it made at the last Budget.”