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Oil and gas expert calls for tax changes to stimulate UKCS activity

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Oilfield Technology,

According to an oil and gas expert from law firm Bond Dickinson, Independent offshore infrastructure owners should be subject to normal Corporation Tax to stimulate the growth of these companies.

Uisdean Vass, oil & gas partner at Bond Dickinson, told an audience of North Sea oil and gas company executives in Aberdeen that the current taxation model for independent offshore infrastructure owners is unfair and counter-productive to the overall needs of the industry and UK economy.

Last year’s Wood Review encouraged the emergence of a class of independent infrastructure owners, which are much more established in other oil and gas jurisdictions, and Mr Vass said fiscal changes were one effective way of supporting this aim.

Uisdean Vass, oil & gas partner at Bond Dickinson, explained: “The Wood Review rightly sought to encourage companies to enter this business, as such companies can only make money through tariffs on throughput, thereby incentivising throughput as quickly as possible for as long as possible. These companies are a welcome feature of the Gulf of Mexico regime in the US, but the independent infrastructure industry is in its infancy on the UK Continental Shelf.

“In our view it is unjust that such companies are subject to ring-fenced Corporate Tax and Supplementary Charge even though they never see the upside of a single barrel of crude oil. If we are to encourage the growth of these companies they need to be subject to regular Corporate Tax.”

The Budget on 18 March significantly improved the UK oil & gas fiscal regime, with the Supplementary Charge reduced to 20% and Petroleum Revenue Tax reduced from 50% to 35%. The introduction of a new Investment Exemption to the Supplementary Charge was also announced.

However, Bond Dickinson says these changes were badly needed even in the context of an industry which earlier in 2014 was enjoying oil prices over US$100 per bbl, and so more needs to be done.

In his presentation, Mr Vass discussed the key issue of third party access and raised the question of how to encourage more seismic activity, which is used by the industry to find new oil and gas deposits.

Uisdean Vass continued: “The UK Government is rightly focused on the importance of seismic activity and says it is committed to funding new seismic campaigns, an idea suggested by the Wood Review. The practicalities of how this will be achieved are yet to become clear, but it would be worth considering the success of overseas models such as the use of tax credits against seismic costs successfully implemented in Norway.”

Bond Dickinson has one of the UK’s leading energy & natural resources legal teams in the UK, with over 50 specialist lawyers primarily based in its London and Aberdeen offices.

In the firm’s latest Oil and Gas Survey with Aberdeen & Grampian Chamber of Commerce, almost two-thirds of all firms surveyed (62%) said the government’s top priority with regard to the sector should be a revision to the fiscal regime to ensure it encourages exploration and extraction.

Adapted from press release by Joseph Green

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