As a response to pressure from the oil and gas industry, the UK government will allow the long-awaited transferable tax history (TTH) policy in order to encourage investment in the North Sea.
In his presentation of the Autumn Budget 2017 to the Parliament on Wednesday, the Chancellor Philip Hammond said the government would introduce ‘Transferable Tax History’ for transfers of oil and gas fields in the North Sea.
This mechanism applies to deals that complete on or after November 1, 2018.
The oil and gas industry has repeatedly called for this mechanism to be introduced. In a final plea for this tax policy the Oil & Gas UK, a trade association for the UK offshore oil and gas industry, on Sunday said this could save the UK taxpayer millions of pounds by deferring the decommissioning of mature oil and gas fields.
During his speech, Hammond called this initiative “an innovative tax policy that will encourage new entrants to bring fresh investment to a basin that still holds up to 20 billion barrels of oil.”
According to the government, this will allow companies selling North Sea oil and gas fields to transfer some of their tax payment history to the buyers of those fields. The buyers will then be able to set the costs of decommissioning the fields at the end of their lives against the transferable tax history.
This will level the playing field between buyers and sellers of oil and gas fields, providing new investors in the UK Continental Shelf with certainty on the tax relief available for the decommissioning costs.
In recent years, the UK government has taken a number of steps to create the right environment for oil and gas producers to maximize economic recovery of the remaining hydrocarbons in the basin.
TTH would permit a seller to transfer an appropriate amount of their tax history along with an asset. This would provide the buyer with certainty that they will be able to access tax relief on their decommissioning costs, putting them on a similar footing to the seller. This would help encourage transactions, helping to protect jobs and maximise economic recovery from the UKCS.
More to follow…