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The Guardian: Tax deal to make North Sea fields last longer

· Relaxation of rules is victory for oil firms
· Announcement part of paper on green initiatives
Terry Macalister 
Friday December 7 2007

Oil and gas firms have persuaded the government to give them more favourable tax treatment to encourage them to keep North Sea fields running longer than expected.

The move was announced by the Treasury yesterday under the banner “securing a sustainable future”, but critics are likely to see it more as an attempt to maintain domestic supplies of gas and oil than part of a green agenda.

The move, a notable victory for the oil firms, comes after a long campaign to ease the rules, particularly on the decommissioning of fields. But the industry, awash with money thanks to high oil prices, said it would continue to push for a reduction in the overall amount of tax it was paying in the North Sea.

Oil and gas companies have been suspicious of Labour since Gordon Brown – as chancellor – hit them with a windfall tax in 2005 at a time when they least expected it. Now ministers have proposed an extension of carry-back rules, under which oil and gas companies receive tax concessions on the cost of dismantling platforms for profits made over the last three years of a field’s life.

As a North Sea field comes to the end of its supplies, volumes and profits shrink, giving the operator less to set against tax and less incentive to continue.

“As a consequence, this is likely to lead in a number of cases to premature decommissioning,” the Treasury says, meaning less oil and gas supplies at a time of increasing need, and less tax revenue for the government.

The issue has led to a suspicion that big oil firms such as BP and Shell are increasingly investing in new fields abroad while hanging on to old British fields. This is because, under current rules, the vendor is potentially liable for the decommissioning costs if the buyer goes out of business.

The government also promised yesterday to continue reviewing the overall tax treatment of companies in the North Sea for the next six months, particularly looking at the way the petroleum revenue tax is working.

Oil and Gas UK, the lobby group for the industry, said it was a step in the right direction. “This is a sign that things are beginning to move and a number of larger issues and smaller ones that have been niggling away for us and been a distraction are to be dealt with,” said Mike Tholen, tax specialist at the organisation. “It is also an acceptance that the industry is genuinely focused on longevity and that the tax regime should not get in the way of further [oil] recovery.”

He added that it was hard at this stage to put a value on the proposed changes.

The government plans to include the proposals in the 2008 budget.

The “sustainable future” paper says the government is also considering a number of incentives to boost investment in alternative energy sources such as wind farms and to encourage carbon capture and storage (CCS) technology, which involves storing CO2 in depleted oil and gas fields.

Industry executives have been frustrated by the government’s failure to provide a fiscal framework for CCS. BP has shelved its planned CCS project for a power station in Peterhead, Aberdeenshire, which would have buried carbon in the old Miller North Sea field, because of the delays. and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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