The UK government has stepped up its shale development game by introducing an allowance that more than slashes in half the tax on shale production income in a push to attract developers.
The pad allowance, announced July 19, cuts the tax on a portion of production income from 62% to 30% at current rates, according to the treasury department.
“Shale gas is a resource with huge potential to broaden the UK’s energy mix. We want to create the right conditions for industry to explore and unlock that potential in a way that allows communities to share in the benefits,” Chancellor of the Exchequer George Osborne said in a prepared statement. “This new tax regime, which I want to make the most generous for shale in the world, will contribute to that. I want Britain to be a leader of the shale gas revolution.”
The announcement comes a few weeks after the UK government released findings of the British Geological Survey (BGS)-conducted study, which revealed England’s Bowland basin is believed to hold up to 1,300 Tcf of shale gas reserves. The updated estimate, covering an 11-county area, is more than double the previous estimate.
If the gas is successfully extracted, it would mark a turnaround for the region that has been working to reverse a production decline that started in 2000. Production of gas, oil, and NGL on the UK Continental Shelf was 2.25 MMboe/d in 1980 and peaked at 4.5 MMboe/d in 1999, according to data from Oil & Gas UK. That number fell to 1.8 MMboe/d in 2011.
Although the BGS was able to identify volumes of gas beneath central Britain, there was insufficient information at the time to determine a recovery factor, the study said. However, with a 10% recovery rate, the estimated shale gas resources could eliminate the country’s reliance on gas imports, creating a supply that could last for decades.
Data from the 2013 BP Statistical Review shows the UK consumed about 2.8 Tcf of gas in 2012 but produced only about 1.4 Tcf of gas that year.
The study noted that other areas in the UK also have shale gas and oil potential. Later in 2013, the Jurassic shales in southern England’s Weald basin will be the subject of another joint study by BGS and the UK Department of Energy and Climate Change.
At the moment, shale development in the UK is moving slowly, amid environmental concerns. The government lifted a ban on hydraulic fracturing in 2012, enabling exploration programs to move forward.
Earlier this month, Cuadrilla Resources announced it will seek permission to hydraulically frac and test shale at its Grange Hill exploration well. The company also said it will apply for consent to use hydraulic fracing and test gas flow at up to six temporary exploration well sites in Flyde.
Contact the author, Velda Addison, at vaddison@hartenergy.com. Image is courtesy of Bloomberg.
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