Best News For This Go-To Petroleum Spot Since 1993

Critical development in the oil and gas space on Wednesday. For one of the most-established producing provinces on the planet.

The spot is the U.K. North Sea. Where finance officials have unveiled a sweeping set of tax breaks aimed at encouraging exploration and increasing flagging production.

The U.K. Chancellor of the Exchequer, George Osborne, announced the measures in an address to the national parliament. Outlining a set of changes that will give petroleum producers an overall 10% in reduction in total tax burden on their operations.

The specific measures include a reduction in the country’s Petroleum Revenue Tax. Taking this measure to 35%, from a previous 50%.

The government also slashed the supplementary rate of taxation for corporations. Reducing this levy to 20%, from a previous 30%.

All of these new rates will be backdated to January. Meaning producers across the U.K. will hit the ground running with higher profits.

Such reforms had been the subject of speculation for some time now. With production from the North Sea having been in decline since 1999 — and recently seeing a spate of divestitures and project shutdowns from big operators in the region.

These tax cuts are certainly a step in the right direction. A path that the U.K. government started down in 1993 when it made big shifts in rates in order to encourage exploration. But which got derailed with ill-timed moves such as a tax increase on production in 2011.

There are still numerous oil and gas discoveries that could be developed in the North Sea. And lower taxes will be a big step toward making such projects economic. Greater profitability here could also enhance exploration drilling activity — potentially resulting in new and significant finds. 

That adds up to an especially interesting opportunity for junior producers. A number of which built significant North Sea project portfolios during the mid-2000s, when tax rates were running at lower levels.

Watch for announcements on acquisitions and new drilling here. And for results of upcoming bid rounds, as a gauge of industry interest in the new and improved North Sea.

Here’s to making it work,

Dave Forest

dforest@piercepoints.com / @piercepoints / Facebook

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