Furious lobbying from the energy industry has prompted the Treasury to trim its £2 billion windfall tax on North Sea oil producers by offering support for smaller, less lucrative exploration fields.
In a significant concession to the industry, the Economic Secretary to the Treasury, Justine Greening, announced today that operators will be allowed to write off a greater sum in losses from exploration and appraisal costs.
The change will lower North Sea producers’ annual tax bill by £50 million by 2016. The measure sent shares in small oil companies rocketing and one major player, Statoil, immediately reversed a decision to suspend North Sea projects.
Oil & Gas UK, a trade body representing exploration companies, described the tax concession as a “constructive move” in offsetting the impact of a controversial windfall levy announced by George Osborne, the Chancellor, in the budget.
Mike Tholen, the association’s economics director, said: “Whilst the change in the allowance will not redress the damage caused by the recent tax increase, it will help new investors to the UK Continental Shelf who are otherwise disadvantaged compared to more established players.”
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The levy on offshore operators was intended to pay for a freeze in fuel duty, providing relief for motorists who have faced soaring petrol prices at a time of economic hardship. It has been criticised by Scotland’s First Minister, Alex Salmond, and the business community.
Shares in one small oil explorer, XCite Energy, surged 17.8 per cent during early trading.
Statoil, the Norwegian energy company, said it would resume work on $10 billion (£6 billion) in oil projects off Britain that had been put on ice. “With this announcement, the negative tax impact has been neutralised,” said a Statoil spokesman.
The Treasury’s change means that an allowance called the ringfence expenditure supplement, which relates to the proportion of tax losses that can be carried forward from year to year, will rise from 6 per cent to 10 per cent.
Ms Greening said: “The Government was clear at the budget that it would engage with oil and gas companies, including to consider the case for further support for marginal projects. Today’s change demonstrates our commitment to ensure current allowances work effectively and equitably.”