With the oil and gas sector being the area most crucial to energy supply in the UK, it was only natural that the Budget would have methods intended to boost this area.
The main change for the sector, which was announced by chancellor George Osborne on March 19th, was that there would be tax breaks for fields in the North Sea that would be considered high pressure and high temperature.
Additionally, a consultation will be opening to uncover methods to reform the tax regime for the oil and gas sector.
The reason why the tax break has been offered to these fields is because they are deemed to be more expensive and challenging to drill. When operating at peak rate, officials in the area expect that exploiting these fields could produce ten per cent of the UK's gas supply.
It is expected that the tax breaks for the Culzean and Jackdaw fields will also help to generate jobs in the sector. Maersk and BG are due to generate 700 jobs in these areas.
Should the scheme to offer tax breaks go ahead then this would cover one fifth of the investment cost into the Jackdaw and Culzean fields by the two companies. As a result, this would help to go towards their development plans, which are expected to cost £6 billion.
As well as the jobs that will be created directly with these companies, it is also expected that a further 8,000 are also set to be generated within the supply chain.
Oil and Gas UK welcomed the review of the tax regime within the sector, however it was concerned about the decision to change the way that drilling rigs are taxed.
Chief executive of Oil and Gas UK Malcolm Webb said: “It is increasingly obvious that the offshore oil and gas fiscal regime has become overly complex, burdensome and uncompetitive. The industry faces marginal tax rates of 62 per cent – 81 per cent on oil and gas production, which are unsustainable in a mature basin. The announcement of the review is a very welcome first step which we hope will lead to a simpler regime more attuned to the industry’s challenges and better able to secure international investment in the many, varied opportunities that remain.”
Following a consultation that was launched during the Autumn Statement in September, it was decided that bareboat chartering arrangements would be made to apply to drilling rigs.
Oil and Gas UK noted that while this may increase the tax yield in the short term the move could prove damaging to the sector. It suspects that day rates for floating accommodation vessels and drilling rigs could drive up costs and deter some companies from exploration.
According to the International Association of Drilling Contractors (IADC), the tax change could cost approximately £145 million to firms over the course of the next year.
Oil and Gas UK predicts that there could be 24 billion barrels of oil and natural gas recovered from the North Sea yet.