Constructive engagement between the UK Treasury and the oil and gas industry since the unheralded increase in the corporation tax rate in March 2011 is now delivering results with the recent announcement of several changes to the regime aimed at promoting investment.

At the start of July, the Treasury opened a 12-week consultation period on how best to provide certainty on decommissioning tax relief; in recent years uncertainty in this area has hampered asset trades and consequently investment. An effective solution should provide the industry with the long-term confidence to invest in oil and gas activities and delay decommissioning of related infrastructure, giving rise over time to up to £40 billion (US $62.5 billion) of extra investment and resulting in the recovery of an additional 1.7 Bbbl of oil and gas.

The UK Government Exchequer could receive an extra billion pounds of tax revenues in the first five years alone. Oil & Gas UK will engage in the consultation over the coming weeks to help ensure that the details of the measure are established to best effect.

Hot on the heels of Prime Minister David Cameron’s display of support for gas exploration in June, when he said natural gas plays a central role in powering the economy, the Treasury announced at the end of July an allowance to promote investment in shallow-water fields in the UK. Pointing out that gas is the single biggest source of energy in the UK, the Chancellor, George Osborne, said the new tax allowance reflects the government’s determination to get the most out of “a huge national asset.”

Oil & Gas UK believes it makes absolute economic sense to promote oil and gas production from the resources the UK is fortunate enough to possess; the allowance for gas in particular has triggered the development of a specific gas project involving expenditure of £2.4 billion ($3.75 billion), the creation of 4,000 British jobs, and £600 million ($939 million) of additional tax revenues for the public purse.

However, there is still more to do.

Additional investment in existing fields offshore the UK also requires a helping hand. Many of these fields rely on infrastructure that has exceeded its original life expectancy, so maintenance is costly. Especially when coupled with the 81% Supplementary Charge to Corporation Tax top rate now payable by older fields, this means more than 200 MMboe are “fiscally stranded.”

We estimate unlocking investment in these brown

fields should result in additional investment of £3.5 billion ($5.5 billion), tax revenues of more than £4.5 billion ($7 billion), and the creation of thousands of UK jobs. For some fields near the end of their planned life, an early decision on support for further investment is urgently required if the UK is to reap the full benefit in terms of jobs, tax revenues, and energy security.

Oil & Gas UK is the official trade association and representative body for the UK offshore upstream industry. Please visit oilandgasuk.co.uk ? for more information.

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