Despite falling oil prices the Chancellor George Osborne gives little to North Sea industries in Budget

North Sea oil explorers and producers were handed little in the way of a boost by the Chancellor in the budget, despite the industry suffering from falling prices.

Oil prices currently below $60 per barrel have hit the UK’s main petroleum producing basin hard, but George Osborne had little to offer in the emergency budget, beyond the incentives he introduced at the end of the last parliament.

In March, Mr Osborne unveiled measures worth £1.3bn over five years aimed at boosting flagging North Sea oil production by 15pc by the end of the decade.

The effective tax rate on production from older oil and gas fields was reduced from 80pc to 75pc, while on newer fields it would be cut from 60pc to 50pc.

However, in his first budget of the new Government, Mr Osborne only pledged: “the Government will expand the North Sea investment and cluster area allowances to include additional activities which will maximise economic recovery”.

“I know people will be disappointed,” said Dereck Leith, oil and gas tax partner at EY commenting on the Budget. “It was something of a soundbite.”

The collapse in oil prices has piled pressure onto North Sea oil companies because of the high costs of producing offshore. Hundreds of jobs have been lost in Aberdeen, while corporate profits in the region have fallen dramatically.

According to the Office for National Statistics (ONS), profitability of companies operating in the UKCS has fallen to a record low. The ONS has said that the net rate of return for operators in the North Sea has dropped to 7.9pc.

Tom Cartwright, energy and tax partner at Pinsent Masons, said: “Any expansion of the investment allowance will be welcome as North Sea developers adapt to a new normal. The move sends a helpful signal to operators that government remains committed to UK hydrocarbons. Whether they see this action as enough when many fields require significant investment is another issue."

Mr Osborne also announced that the Government would bring forward proposals to set up a sovereign wealth fund for local communities surrounding shale gas developments.

Fracking for gas in the UK has stalled because of environmental concerns, despite the Government strongly backing its development. Last month, plans by Cuadrilla to start fracking in Lancashire were thrown out by the local council.

Source: www.telegraph.co.uk

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