SCT. This effectively negated the


increase in the SCT because the tax yield for 2011/2012 was £2.3 billion lower than antici- pated by the Treasury months earlier. Energy imports in- creased with a corresponding detrimental impact on the UK’s balance of payments.


Allowances boost investment An increase to the Small Field Allowance (SFA) was one of the bright spots of the 2011 Budget. New fields of 45m boe or less qualified for an al- lowance of £150m, with a taper down to zero for fields of 50 million boe in size. This was up from fields of 25 million boe or less qualifying for a £75 mil- lion allowance previously. Oil & Gas UK estimates that


five out of 35 of the potential new small field developments it looked at were considered un- likely to proceed without the in- crease in the SFA. In the 2012 Budget an al-


lowance for new, large deep- water developments (west of Shetland oil) was imple- mented.


The Treasury said the al-


lowance would shelter up to £3 billion of production income from the SCT for fields in water depths of more than 1,000m and for fields with minimum reserves of 188 mil- lion bbl and maximum reserves of 300m bbl, with the al- lowance tapering down to zero for fields with reserves of more than 412m bbl. The Rosebank project has


been a direct beneficiary of this allowance. In July, the government an- nounced a further new field al- lowance to shelter up to £500m of income from the SCT for sizeable gas fields in shallow water.


The Cygnus gas field proj-


ect was a specific beneficiary of the allowance.


And in September this


year, the government unveiled its brown-field allowance which seeks to unlock mar- ginal investment in existing fields.


This allowance targets fields


already in production and the size of the allowance is deter- mined on a sliding scale, based on the capital cost per barrel of the incremental project.


EnQuest sees the benefit Nigel Hares, chief operating of- ficer of North Sea-focussed En- Quest, said his company had been rocked when the SCT was introduced in the 2011 Budget. He said: “Budget 2011 was quite a damaging day for En- quest. It made a number of our projects sub-commercial. By making projects sub commercial


Offshore Technology November/December 2012


you reduce possible investment, jobs and future tax receipts. “By their nature projects


which have not been sanc- tioned tend to have marginal economics.”


But he said that recent changes to the tax regime have benefited the company’s Alma/Galia development, the second redevelopment of the Argyle and Duncan fields. Alma is being developed


through two drill centres tied- back via new oil production and water injection flowlines to the Uisge Gorm floating pro- duction, offloading and storage vessel (FPSO). Galia will also be tied back to the FPSO. Hares explained: “This is a


project we were trying to get going at the time of the 2011 Budget, prior to which this was


Nigel Hares (L) and Roman Webber (R) prepare to address delegates


already a marginal project. “The impact of the budget


was to take 20% off its value and caused us to do quite a lot of rethinking and also to start lobbying for an improved small fields allowance. “The new small fields al-


lowance means quite a lot of the value knocked off by the SCT is replaced and that has al- lowed us to go ahead and sanc- tion this large, US $1 billion project. We are on track for first oil in the fourth quarter.” Hares explained that on


Revellers at the Queen’s Diamond Jubilee celebrations in London


Thistle, which was headed to- wards decommissioning in 2008, work is continuing. “Now, with new seismic, successful redevelopment drilling and a project to extend its life for another 25 years, it’s adding some 40m bbl of new reserves. It is a project that has been brought to life by the brown field allowance.” Hares said the ultra-heavy


oil allowance also has a signifi- cant impact on the viability of heavy oil fields. “The heavy oil allowance


ups the value by about 40%, making the development of heavy oil fields viable. As a consequence fields like Kraken are being moved towards sanc- tion and we’re aiming for sanc- tion in the first half of 2013. This is a big development, 100- 160m bbl with 25 wells and a big FPSO.” Meanwhile, Roman Webber, a tax partner at Deloitte LLP, said there was complexity in the new initiatives, but added: “I think complexity can be worked through and understood. What people do want is stability. “Confidence appears to be


returning. The recent changes have had an impact and there has been increased drilling and deal activity after the second quarter. The tax regime is be- coming a bit more bespoke for particular fields. There is a lot of work that remains to be done and the recent changes will take some time to feed through.”


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