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Oil & Gas
Golden Brown?
A The New Brown Field Allowance for Oil and
Gas Companies Jeremy Cape and Andrew Thornton, SNR Denton
The Chancellor of the Exchequer announced a new tax measure aimed at supporting billions of pounds of new investment in older oil and gas fields in the North Sea, increasing tax revenues from the industry.
tax allowance for certain mature fields, known as brown fields, will shield a portion of income from the Supplementary Charge, encouraging companies to invest in getting
the very most out of existing fields and infrastructure in the UK Continental Shelf.
The profits of oil and gas companies in the UK are subject to corporation tax (currently 30%) and a supplemental charge (currently 32%). Certain older fields are also subject to Petroleum Revenue Tax (PRT) at 50%, which was replaced with the supplemental charge for fields that were given development consent on or after 16 March 1993. Any
company currently subject to PRT is allowed to deduct such PRT paid from its profits when calculating its income for corporation tax purposes.
Overall, the amount of tax on the oil and gas sector is high, and in particular the sector has not benefited from the reduction in the general rate of corporation tax to 24%. The industry has been lobbying for general and targeted measures to ease the tax burden in appropriate cases. The Chancellor had been under pressure from the oil and gas industry to provide incentives after the increase in the supplemental charge to 32% in 2011 (to help fund a sharp decline in the amount of fuel
duty). That announcement, which had not previously been trailed by the Chancellor, had provided a nasty surprise to the industry.
This year's Budget, which contained no nasty surprises for the oil and gas sector (although readers may recall numerous other omnishambles contained therein) announced several measures intended to increase investment in the oil and gas sector in fields that were considered, because of the high tax rates, not to be commercially viable. This included an increase in the small field allowance and an allowance for new large deep water fields (aimed at fields west of Shetland). These measures were provided for