Tax changes could boost small UK fields

Recent tax changes could stimulate marginal field development in the UK offshore sector, according to consultants Hannon Westwood.

Offshore staff

ABERDEEN -- Recent tax changes could stimulate marginal field development in the UK offshore sector, according to consultants Hannon Westwood.

The Value Allowance was introduced in April, in recognition that the sector was suffering from financial difficulties and lower oil prices.

Hannon Westwood, which was involved in the government’s consultation process with offshore operators, developed software to measure the effect of fiscal changes on 259 undeveloped UKCS discoveries.

Of these, 235 have reserves of up to 20 MMboe, while the remaining 24 have reserves of 20-26 MMboe. Using a base case $45/bbl oil price (and a 37p/therm gas price), the consultants calculated that for fields in the 20 MMboe or less bracket, the number of potentially commercial projects rises from 12 to 28 as a result of the £75 million ($123 million) tax allowance.

With an oil price of $60/bbl, and gas at 44.4p/therm, the viability soars to 139 fields when factoring in the new allowance.

For discoveries of 20.1-26 MMboe, however, the allowance pushes the number of potential developments up by just one to 18, even in a $60/bbl scenario, the consultants claim.

MD Jim Hannon said: “The Treasury appears to have pitched the Allowance at a level that reflects a medium term $60/bbl oil price, or alternatively a reduction in capital and operating expenditure and well costs, assuming a response from suppliers to the fall in the oil price.

“On the other hand, if the oil price falls below $45/bbl, the new £75 million ($123 million) Allowance might still be sufficient to underpin an adequate (or practical) number of projects, given the limits on rig supply.”

06/03/2009

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