The North Sea's largest British independent oil producer, EnQuest Plc, will pay no tax until 2018 after its decision to go-ahead with the development of a second new field of heavy oil on Friday.
Companies operating in the British North Sea have enjoyed improving tax terms over the past two years as the government has become increasingly concerned about declining output there.
The ultra heavy oil tax allowance Enquest will tap for its two Kraken fields will trigger two 800 million pound allowances, giving the fields tax relief worth 512 million pounds ($824 million).
Enquest made a profit of about $98 million in the first half of this year after paying $70 million in tax.
Enquest, whose chief executive Amjad Bseisu owns a stake of around 9 percent in the firm, announced on Friday it would go ahead with plans to develop Kraken along with its two partners. The project has 137 million barrels of oil equivalent (boe) in gross reserves, increasing the company's total reserves by almost 50 percent compared with the 2012 year end.
Kraken is expected to produce as much as 30,000 boe a day, coming on stream in 2016/17. Enquest estimated net capital expenditure to reach first oil at $1.4 billion.
Enquest, which has built a large portfolio of mainly mature North Sea assets in the years since it went public in 2010, submitted its development plan to the British government in the first half of this year.
In August it explained how it wanted to secure an extra tax allowance.
"The Kraken appraisal well confirmed a separate second field, to be known as 'Kraken North'", it said. "A second heavy oil tax allowance of 800 million pounds is therefore anticipated. With the sanction of Kraken and the associated capital investment, EnQuest does not expect to pay cash tax before 2018," it said at the time.
The British government said the project, east of the Shetland Islands, could create 20,000 jobs during its construction phase and amount to 4 billion pounds of investment over 25 years.
"This is a big investment that will create jobs and boost the British economic plan, Chancellor George Osborne said in a statement.
"It is also evidence that our efforts to create a competitive tax regime that gets the most oil and gas out of the North Sea are working."
(Additional reporting by Abhirup Roy in Bangalore; Editing by Kenneth Maxwell and Elaine Hardcastle)