Britain plans to introduce tax changes to oil and gas companies operating in the North Sea, finance minister Philip Hammond said on Nov. 22, in a bid to spur investment in the aging basin.
Presenting Britain's budget for next year, Hammond said that starting November 2018, tax history for oil and gas fields in the North Sea would be transferable from seller to buyer.
That will allow buyers to benefit from larger tax relief when fields reach the end of their life and require dismantling, known as decommissioning.
Britain's Oil and Gas Authority forecasts that North Sea oil and gas operators will spend almost 60 billion pounds (US$78 billion) on decommissioning wells, platforms, pipelines and other infrastructure between now and the 2050s.
Government relief covers about 40% of the total costs.
Legislation on the tax relief will be published in spring 2018 with the aim of making transferrable tax histories available from Nov. 1, 2018, according to the proposed budget.
The North Sea has seen a flurry of deals in recent months, including Royal Dutch Shell Plc's (NYSE: RDS.A) $3.8 billion sale of assets to private-equity backed Chrysaor Holdings Ltd., as longstanding operators make way for a new generation of smaller firms focussed on squeezing more profit from old assets.
Decommissioning remains a sticking point in many of the negotiations as the original operator of a North Sea field retains ultimate responsibility for its dismantling.
As a result, companies such as Shell or BP Plc (NYSE: BP) agreed in some cases to share part of future decommissioning liabilities in deals in recent years.
Amjad Bseisu, CEO of North Sea-focused company Enquest Plc, which specializes in extending the life of aging assets, welcomed the government's announcement.
"It makes sense for such tax losses to be transferable with the assets as it increases the efficiency with which assets can change hands in the North Sea—it is another tool in the deal toolkit," said Bseisu.
Enquest this year acquired stakes in several North Sea fields and assets from BP for $85 million under which BP agreed to pay part of the decommissioning costs.
The government said it would also launch a technical consultation on allowing a petroleum revenue tax deduction for decommissioning costs incurred by a previous license holder.
Philip Whittaker, energy director at The Boston Consulting Group, said the tax relief underscored the importance of decommissioning in the North Sea in dealmaking.
"The impact and value of the measures will be very deal-specific, but it represents another lever in the commercial toolbox that existing operators and new entrants can apply to help deals progress," he told Reuters.
Recommended Reading
US Natgas Prices Hit 5-week High on Rising Feedgas to Freeport LNG, Output Drop
2024-04-10 - U.S. natural gas futures climbed to a five-week high on April 10 on an increase in feedgas to the Freeport LNG export plant and a drop in output as pipeline maintenance trapped gas in Texas.
Carlson: $17B Chesapeake, Southwestern Merger Leaves Midstream Hanging
2024-02-09 - East Daley Analytics expects the $17 billion Chesapeake and Southwestern merger to shift the risk and reward outlook for several midstream services providers.
US NatGas Flows to Freeport LNG Export Plant Drop Near Zero
2024-04-11 - The startup and shutdown of Freeport has in the past had a major impact on U.S. and European gas prices.
Exclusive: Chevron Balancing Low Carbon Intensity, Global Oil, Gas Needs
2024-03-28 - Colin Parfitt, president of midstream at Chevron, discusses how the company continues to grow its traditional oil and gas business while focusing on growing its new energies production, in this Hart Energy Exclusive interview.
Gunvor Group Inks Purchase Agreement with Texas LNG Brownsville
2024-03-19 - The agreement with Texas LNG Brownsville calls for a 20-year free on-board sale and purchase agreement of 0.5 million tonnes per annum of LNG for a Gunvor Group subsidiary.