Monday, 2 May 2011

Tax on oil and gas production from 20% to 32%

Recently Chancellor George Osborne raised supplementary tax on oil and gas production from 20% to 32%; even though there were warnings that this will limit exploration (of oil and gas) and make the UK more dependent on imports from Russia and other overseas sources.

The Treasury said the supplementary charge on oil and gas companies allow the government to lower fuel duty for motorists struggling with high prices at a time of austerity.

So what are the repercussions on companies so far?

Last month, Oil & Gas UK, the trade association representing the offshore sector, said the new tax could cost the industry £50 billion over the next 10 years.

Centrica, the owner of British Gas, says it might shut one of its major gas fields! The company is closing three fields in Morecambe Bay for a month of maintenance, and says it might not reopen one of them. Morecambe Bay produces about 6% of the UK's annual gas requirements, or up to 12% of residential gas demand, according to Centrica. 

The company last month signed a deal with Qatar to provide up to 10% of the UK’s gas requirement for the next three years.

Other big operators including Chevron and Royal Dutch Shell have said the tax change, which is the third in ten years, will make it difficult to deal with the UK tax system.

A string of firms, including the Norwegian giant Statoil and Valiant Petroleum, have cancelled or delayed plans for North Sea (which is where the tax is being enforced) exploration following the Chancellor's announcement.

It is also important to keep in mind how investors in such companies are thinking, they will undoubtedly be revaluating all these opportunities in light of the tax increase!

Labour's finance spokesman Ed Balls said "The consequence of this rushed and botched decision is that companies are reconsidering their future in Britain and we risk losing jobs and investment as well as secure energy supplies. Labour will be pushing in Parliament this week for George Osborne to review his decision.'' 

Will Labour get their way or will these companies find themselves in a situation requesting our help (assuming we are big shot lawyers ;) )

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