The U.K. cut taxes on the North Sea oil and gas industry as Chancellor of the Exchequer George Osborne seeks to ease the strain on producers squeezed by plunging oil prices.
The supplementary charge for the oil and gas industry fell by half to 10 percent from 20 percent, bringing the overall corporate tax rate to 40 percent from 50 percent, Osborne announced in his budget Wednesday. The Petroleum Revenue Tax, which stood at 35 percent, will be scrapped altogether, he said. These changes will be backdated, starting from January of this year.
The decision comes as a slump in Brent oil prices by more than 60 percent since mid-2014 has made much of the production in the U.K.’s North Sea basin — once the Treasury’s “golden goose” — uneconomic as costs escalate at aging fields.
The news is welcome, Alan McCrae, U.K. head of energy tax at PricewaterhouseCoopers LLP, said by e-mail. “This is aimed at stimulating investment at a time when the industry desperately needs it.”
Lobby group Oil & Gas U.K. has forecast a 22 percent slump in capital expenditure in the region this year as dwindling revenue forces operators to retrench. Some producers have suspended projects to save cash.
While Oil & Gas U.K. had asked for a bigger cut of 20 percentage points in the main tax rate, it had lobbied to see the the Petroleum Revenue Tax abolished.
Shares of independent oil companies operating in the U.K. North Sea rose on the news. EnQuest Plc climbed as much as 3.5 percent, Cairn Energy Plc jumped as much as 4.5 percent and Premier Oil Plc surged 8.2 percent.