LONDON--The U.K. government is introducing a new tax allowance
for oil and gas fields in the North Sea to encourage more
investment amid a wholesale review of the fiscal regime of the
sector, which is facing higher costs and declining production, U.K.
Chancellor of the Exchequer George Osborne said Wednesday.
The new allowance for ultra-high pressure high temperature oil
and gas fields has the potential to attract 5 billion pounds ($8.3
billion) to GBP6 billion of new investment and could encourage
exploration in the central North Sea, unlocking more costly barrels
in technically challenging prospects, industry trade group Oil
& Gas UK said.
The Maersk-operated Culzean field and BG Group PLC's (BG.LN)
Jackdaw gas condensate projects, both of which are high pressure
high temperature, could potentially benefit from the new
allowance.
In recent years, the U.K. government has introduced a string of
tax breaks, including brown field allowances and relief for
dismantling old platforms in the sea, in efforts to stimulate
investment in remaining reserves that are becoming more expensive
and technically challenging to develop. The government also hopes
the tax breaks will help to stem a more than decade-long decline in
North Sea oil and gas production.
Mr Osborne said Scotland, where most of the offshore oil and gas
fields are located, should be mindful of the declining nature of
North Sea tax receipts as they prepare to vote in a Sept. 18
referendum on whether to become independent from the U.K.
In the last year alone, the Office for Budget Responsibility has
revised down oil and gas revenues by GBP8 billion over the next
five years, according to the budget.
"This is a reminder of how precarious the budget of an
independent Scotland would be. These further downgrades in the tax
receipts would leave an independent Scots with a shortfall of 1,000
pounds per person," he told parliament in his budget speech.
Production last year was better-than-expected at 1.43 million
barrels of oil equivalent a day due to new developments and an
increased focus on production efficiency. This is a far cry from
the sector's peak of 4.5 million boe/day in 1999.
Write to Selina Williams at selina.williams@wsj.com
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