LONDON, March 20 (Reuters) - The British government promised certainty on tax relief for the costs of shutting down ageing North Sea pipelines and platforms, a move which should encourage investment and help the country’s economy.
The oil and gas industry has been waiting for clarity on the tax treatment of decommissioning since 2011, when in his first budget, finance minister George Osborne said tax breaks on field abandonment costs would be limited, a surprise move that prompted howls of disappointment from the industry.
Osborne said in his annual budget on Wednesday that the government would sign contracts with companies to provide certainty on decommissioning relief later this year.
Decommissioning includes plugging old wells and removing installations once the oil and gas has been pumped out, and clarity on how tax breaks will be applied to the costs involved should help older, or “late life” assets change hands.
Late life assets tend to be bought by smaller companies for which smaller reserves of oil and gas are more meaningful, encouraging investment and maximising output from the region, which - in its fourth decade of production - is in decline.
Smaller firms should benefit from the new contracts as they will need less financial security to cover the ultimate costs of abandoning a site, freeing up funds for other investments.
Exploiting as much oil as possible from the North Sea could help revive Britain’s economy. Dramatic production falls in 2011 and 2012 have undermined attempts to kickstart growth.
“The measures announced today will for the first time ever give companies the certainty they need over the tax treatment of decommissioning,” the chief executive of industry body Oil & Gas UK’s Malcolm Webb said.
The 2013 budget also introduced a generous field allowance for shale gas developments, demonstrating government support for the oil and gas industry, two years after the 2011 budget raised a supplementary tax on oil producers, prompting outcry from oil companies. (Reporting by Sarah Young; Editing by Helen Massy-Beresford)