Out-Law News 2 min. read

UK government announces new £5m fund to support North Sea exploration


New funding worth £5 million will be made available to support oil and gas exploration in the North Sea, the UK government has announced.

The money will be used by the Oil and Gas Authority (OGA) to fund surveys into under-explored areas of the UK Continental Shelf (UKCS) during financial year 2018/19, and could uncover new oil and gas deposits.

OGA chief executive Andy Samuel said that the money would "provide industry with a range of high quality new data", addressing the risks and uncertainties associated with exploration and promoting "frontier and under-explored areas" of the UKCS.

Chancellor Philip Hammond announced the new funding on a visit to the Oil and Gas Technology Centre in Aberdeen. This facility, which is part-funded by the UK government, announced this week that its work with the industry on new subsea technologies could help recover an additional 400 million barrels of oil and gas from the North Sea, worth an additional £3 billion to the UK oil and gas industry.

Hammond said that the oil and gas industry remained "vital" for the Scottish economy, and to the UK as a whole.

"The £5m funding I am announcing will help exploration to find potential new deposits, and boost prospects for jobs in Aberdeen and the surrounding area," he said. "This continues the UK government's extensive package of tax and funding support for the industry and the wider Scottish economy."

Industry body Oil and Gas UK described the new funding as a "welcome boost" for the industry. In its annual 'economic report', published to coincide with industry conference Offshore Europe earlier this month, Oil and Gas UK said that low levels of exploration and appraisal activity remained a "serious concern" to the industry, despite the recent recovery around the rate of production.

Oil and Gas UK chief executive Deirdre Michie called on the government to maintain its "commitment" to the North Sea, including potential changes to the tax treatment of late life oil and gas assets anticipated alongside the Budget in November. Enabling transferrable tax history (TTH) in particular would "further unlock the transfer market for late-life assets, encourage more investment and delay decommissioning for as long as possible", Michie said.

"This is an industry that makes an extraordinary contribution to the UK economy, helping meet our energy needs, making an estimated contribution of £17bn to the UK's balance of trade and supporting 300,000 jobs in the UK," she said. "With the right support from government, and a relentless focus on efficiency from industry, we can maximise our domestic resources while anchoring our supply chain here in the UK for the long-term."

TTH would permit the seller of late life assets, such as oil platforms and related infrastructure, to transfer a portion of their ring fence corporation tax payment history to the buyer alongside the asset, which could be used later to offset some of the costs of decommissioning. The government has been examining how best to determine the TTH for a particular asset, as well as how to avoid tax history being "treated as a tradeable commodity", as part of its work in this area.

UK oil and gas operators are currently predicted to spend £60bn on decommissioning between now and the 2050s. Tax relief on decommissioning covers around 40% of the cost for companies, or a predicted £24bn between now and the 2050s.

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