The 2015 Budget statement was perhaps the most anticipated announcement of the year as the oil and gas industry waited with bated breath to see if the much needed tax cuts would be granted by Chancellor George Osborne.
And after a disappointing result from the Autumn budget, it seems Mr Osborne decided to take the bull by the horns in today’s announcement.
A number of reforms were granted to ensure the North Sea continues to attract investment and exploration. Sir Ian Wood and Oil and Gas UK have already expressed their support for the new reforms - but is it too little too late?
The Chancellor introduced a new Investment Allowance to stimulate investment in the North Sea, which was followed by a reduction in the current Supplementary Charge from 30% to 20% - building on the 2% cut announced within the Autumn budget.
Petroleum Revenue Tax (PRT) more importantly, saw a reduction from 50% to a generous 35% which will take effect next year, to aid further investment in mature fields and extend the life of key infrastructure.
I was pleasantly surprised to see the introduction of £20m of funding for a programme of seismic surveys aimed at encouraging offshore exploration and production. Decommissioning was also given a boost, with a promise that the Oil and Gas Authority would have powers to scrutinise companies’ plans for decommissioning programmes to ensure they are cost effective.
So what does all this mean for the North sea’s future? The aim is to entice investors back to the UKCS, but will we see this in 2015? I’m not so sure. With company budgets already set and agreed for the year I think it will take a while for the North Sea to really start reaping the benefits of this budget.
Had these reforms been introduced in the Autumn Statement however, I think we would have seen a different story, with company budgets taking into account the funding for seismic surveys and the Investment Allowance.
It seems the general message from the budget was ‘the UK is open for business’ and Mr Osborne even predicted North sea oil production would increase by 15% by the end of the decade – a hopeful figure in the current climate.
The budget has certainly provided a morale boost in these difficult times, and it is great to see things are moving in the right direction. The only question left is what will the UK government election bring in May, and will these welcomed reforms be upheld?