* Certain older North Sea fields to be shielded from some
* Oil and Gas UK sees tax breaks boosting production, tax
* Talisman says Montrose project likely to go ahead after
By Sarah Young
LONDON, Sept 7 Britain will offer new tax breaks
to encourage investment in older oil and gas fields in the North
Sea as the government, under pressure to stimulate growth, moves
to revive a key part of the economy which has long been a driver
of its prosperity.
Finance minister George Osborne said on Friday that income
from some mature oil fields would be shielded from a
supplementary tax charge on producers to encourage them to
maximise the amount of oil they pump out of the ground.
A dramatic fall in Britain's oil and gas production shaved
at least half a percentage point off the country's economic
growth in 2011, a major difference for an economy that is
stagnating as businesses struggle with the gravest economic
crisis since the Great Depression.
"Finally, the government is waking up to the fact that an 18
percent year-on-year reduction in North Sea production needs to
be addressed and is back-pedaling against the recent 12 percent
tax hike," Numis analyst Sanjeev Bahl said.
In March 2011, Britain's coalition government raised a tax
on oil and gas output to 32 percent from 20 percent, a move
greeted with dire predictions by the industry.
Britain's oil and gas production, long a driver of British
wealth and boon for now dire public finances, has been in
decline since 1999.
Industry body Oil and Gas UK estimated that the tax break
would lift oil and gas recovery by 150 million barrels of oil
equivalent in the near term, a rise of 10,000 to 20,000 barrels
of oil equivalent per day in North Sea production.
In addition, the changes will boost the Treasury's revenues
by 1.5 billion pounds ($2.4 billion), estimated Oil and Gas UK,
a not insignificant figure compared to the 11.1 billion pounds
that the industry paid in production taxes in the 2011-12 fiscal
Should production stabilise or even improve, it will have a
positive impact on the UK economy at a time when Prime Minister
David Cameron and Osborne are under mounting pressure as their
flagship austerity plan fails to stimulate growth.
Canada-based Talisman, a mid-sized North Sea
producer, said the tax breaks meant it was much more likely to
go ahead with redeveloping its Montrose oil field, a project
which will involve installing new equipment to extract oil in
the areas surrounding the main field.
The tax breaks for older fields, which are often more costly
to run, are the latest measures introduced by the government
since last year's tax hike, as tries to reverse its impact and
slow the decline in North Sea production by stimulating
"This initiative will have an immediate impact in that it
will help to promote investment and sustain production from many
mature fields, enabling more oil and gas to be recovered from
them," Mike Tholen, economics director at Oil and Gas UK, the
industry body said.
Analysts said that in addition to Talisman, British oil
companies such as EnQuest, whose shares were up 2.5
percent, British-based Premier Oil, which was 0.75
percent higher, would benefit from the changes.
Talisman said it believed the Montrose project would create
or support 2,000 new jobs, echoing claims made by Osborne in his
statement that the tax break was positive for employment.
The tax allowance will shield up to 250 million pounds
($398.39 million) of income from some projects in older fields
known as brown field sites, Osborne said.
That figure rises to 500 million pounds for projects in
fields paying the petroleum revenue tax, an older tax which was
discontinued for fields sanctioned after 1993.
Projects to qualify for the tax breaks will be those given
authorisation by the government's Department of Energy and
Climate after Sept. 7 2012 to boost production, and which have a
capital cost of over 60 pounds per tonne of incremental