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Western Europe Unexpected Tax Rise Could Derail North Sea Investment Renaissance

Industry / United Kingdom

The decision to raise the supplementary charge on oil and gas company profits from 20% to 32% threatens to reverse gains in the North Sea as the economics of mature field projects worsen.

2011-03-24

BMI View: The decision to raise the supplementary charge on oil and gas company profits from 20% to 32% threatens to reverse gains in the North Sea as the economics of mature field projects worsen.

British Chancellor of the Exchequer George Osborne championed his budget as a boon to British business.

The UK's oil and gas industry, however, is likely to take issue with that claim.

The sector was caught by surprise when Osborne's budget, announced on March 23, called for a rise in the supplemental tax levied on the industry from 20% to 32%.

The tax will raise about GBP2bn (US$3.26bn) in additional tax revenue from oil and gas production, according to the Budget Report.

The funds will be used to cover a GBp1 cut to fuel duty, a populist move designed to appease drivers and the haulage industry.
Major Players

The British section of the North Sea has experienced something of a revival since 2009, with both majors and independents taking advantage of existing infrastructure, a stable investment climate and higher oil prices to try to squeeze as much as possible from the area's mature fields.

Companies at the forefront of that revival had been particularly cheered by comments Osborne made after taking office in May 2010 recognising the need for what he called a 'stable' investment climate.

To be blindsided by a significant tax rise, then, has caused concern in the industry and threatens to derail what has been an upward recent trend in North Sea investment.

The largest North Sea producers are still major international oil companies (IOCs) such as BP, Royal Dutch Shell, Total, ConocoPhillips and Eni. These companies account for about half of British production.

It is smaller companies such as Premier Oil, EnQuest and others, however, which have restored some of the lustre for the UK section of the North Sea after years of declining production.

These companies have been snapping up mature fields from majors, which see them as too small to justify the investment needed, and taking steps to extend their working lives.

The problem with raising the supplementary tax is that the project economics for these mature fields are already tight and the tax rise may make some projects non-commercial for smaller producers.

The tax rise may cause others to abandon the North Sea altogether.

This could pose a problem for majors, which have been looking to raise cash by selling mature fields.

BP expected to raise about US$1bn by selling all of its Southern North Sea assets as well as the onshore Wytch Farm project.

Exxon Mobil is also reportedly planning to sell about US$2bn worth of North Sea assets.

Conoco announced plans on March 23 to sell an addition US$5-10bn of assets and we expect Conoco's North Sea assets to be offered as part of the plan.

Rising investment in the North Sea has slowed the rate of decline in British production. We estimate output to have been 1.35mn barrels per day (b/d) in 2010, which we see declining to under 1mn b/d by 2015, falling as low as 630,000b/d by 2020.

If investment slows in the North Sea's mature fields, this decline will only be hastened.

http://www.oilandgasinsight.com/file/100603/unexpected-tax-rise-could-derail-north-sea-investment-renaissance.html
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http://www.proactiveinvestors.co.uk/companies/news/26700/xcite-energy-shares-pick-up-as-co-says-uk-oil-tax-changes-wont-affect-bentley-development-plans-26700.html

Xcite Energy shares pick up as co says UK oil tax changes wont affect Bentley development plans
11:49 am by Jamie Ashcroft

I thought we were supposed to get big RNS by end of month........worrying it hasn't happened.....Maybe tommorrow, oh no April fools day!!!!

Will the RNS be on the 6th April or after, so new Isas can be put in place.

I know i would like it to be on the 6th or after so i can put it in an ISA,dont think there are any problem Baleboy i can only see it going to be a very Comprehensive and well evaluated RNS when it does come out which should cross all the boxes, also I think the board are one of the best around and deliver the goods every time just a little patience needed here.

would be nice to see a blue day for once, why sell?

Topped here for a 4.29pm rns ready for tomorrow..........bring it on.,.

it's been a silly day because of it it being 5/04 (and too many posts from Bernard M!!) ..... rns tomorrow? .... prob not, but a promising stock for sure

On the move up this morning 10p+ news coming.....I can feel it in my water.,.

Well i have just wrapped up another 10,620 in an ISA in XEL so just waiting for news.

good for you marky.....profits coming soon, will be able to take cyners out for a decent meal.......he has such low standards......lol

It was Cynic that gave me the nod on this one last year so owe him a drink or two,lets hope news soon and we get a whooooooooosh in the share price.

Nice rise on the way looking at the trades it looks like everyone else is piling in and taking up there ISA allowance.

BB promised me lunch just before Christmas and he took me to some deadbeat pub in Bath

LOL LOL LOL RFLOL........WHAT ARE YOU LIKE.,.

secret just had to be told!

http://www.youtube.com/watch?v=L4mGoRte104

40th Oilbarrel Conference - Xcite Energy

Never seen this well worth watching and i may re top up again,will see what tomorrow brings.

beware oilbarrel .... i used to read it but came to the conclusion it was just an advertsing platform for companies rather than for objective analysis

Am waiting..........hmmmmmm

Bought a few more today....greedy or wise move....hmmmm time willl tell