LONDON (Alliance News) – Oil producers operating in the struggling UK North Sea were given further assistance on Wednesday after UK Chancellor of the Exchequer George Osborne announced he will slash supplementary tax in half and effectively abolish the Petroleum Revenue Tax.
Unveiling his plans to boost the oil industry as part of his eighth budget as Chancellor, Osborne also said he also plans to launch more auctions to boost renewable energy, hinting the focus would be on small nuclear power plants.
Osborne has cut the supplementary tax paid by UK oil producers in half to 10% from the current 20%, and he said he was also “effectively abolishing” the Petroleum Revenue Tax. Importantly, both those measures have been backdated to the start of 2016. Combined, the two measures will save the industry GBP1.0 billion, the Treasury said.
The cut to supplementary tax follows on from the cut made in the March 2015 budget to 20% from 30%, which was backdated to the start of 2015. The Petroleum Revenue Tax was lowered to 35% from 50% effective from the start of 2015, making the chancellor’s pledge to effectively abolish it on Wednesday significant for the industry.
“The oil and gas sector employs hundreds of thousands of people in Scotland and across our country. In my budget a year ago, I made major reductions to their taxes. But the oil price has continued to fall. So we need to act now for the long term,” Osborne said Wednesday.
Petroleum Revenue Tax is on the profits from oil and gas production in the UK or on the UK continental shelf and is only payable from older producing fields, whilst the supplementary tax is charged against the cost of extracting the oil from fields.
North Sea oil companies saw their shares rise on Wednesday following the budget. Premier Oil PLC shares were up 7.6% and Cairn Energy PLC shares were up 4.5%. Enquest PLC were trading up 1.8%, Independent Oil PLC shares were up 16% and Ithaca Energy were up 8.1%.
Big players BP PLC were up 2.9% whilst Royal Dutch Shell ‘A’ shares were up 2.8%, whilst the four major London-listed service companies John Wood Group PLC, Amec Foster Wheeler PLC, Petrofac Ltd and Hunting PLC were also up on Wednesday afternoon.
The cuts come after the Scottish government and the trade body representing the offshore industry, Oil & Gas UK, pleaded for Osborne to make “urgent” tax cuts.
Oil & Gas UK will be pleased with the abolishment of Petroleum Revenue Tax, as it only asked the government to reduce it.
The trade body has not yet released a formal statement, but tweeted following the budget that the organisation would “welcome any steps to reduce the heavy tax burden on the oil and gas industry”.
Both the trade body and the Scottish government also called for the introduction of government loan guarantees to support struggling companies and for a tax relief on decommissioning activities to extend the life of older producing fields.
Osborne took a swipe at supporters of a break up of the UK, stating the support offered to the oil industry, which is mainly based in Scotland, with Aberdeen at the hub, was only possible because of the “broad shoulders of the UK”.
“None of this support would have been remotely affordable if, in just eight days’ time, Scotland had broken away from the rest of the UK, as the nationalists wanted,” said Osborne. “Their own audit of Scotland’s public finances confirms they would have struggled from the start with a fiscal crisis under the burden of the highest budget deficit in the western world.”
Osborne also pledged to boost renewable energy technology by pledging to hold further auctions worth GBP730.0 million, stating he was “now inviting bids to help develop the next generation of small modular reactors” – suggesting a bias toward nuclear power generation.
That nod toward nuclear power comes amid ongoing issues at the Hinkley Point C, the nuclear power plant that is due to built by French energy firm EDF Energy. EDF is struggling to source the needed cash for the project as rising costs have forced the company to ask the French government for help.
The nuclear power plant is significant, as are the delays to it, as the plant is expected to generate enough energy to power 7% to 8% of UK households. However, the call for small modular reactors suggests the chancellor is looking for smaller nuclear plants, as these tend to have a capacity of only 300 megawatts – enough to power up to 49,000 homes each.
By Joshua Warner; firstname.lastname@example.org; @JoshAlliance
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