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U.K. tax cuts aim to boost North Sea energy output

Mar. 19, 2015 8:38 AM ETBP p.l.c. (BP)BP, SHELBy: Carl Surran, SA News Editor8 Comments
  • The U.K.'s new budget includes tax cuts and a less complex set of incentives for the country’s oil and gas sector to help the North Sea energy industry hit by low oil prices and aging fields.
  • U.K. Chancellor of the Exchequer Osborne plans to cut the rate of the supplementary charge on energy company profits to 20% from 30% and cut the petroleum revenue tax to 35% from 50%.
  • The budget measures aim to boost North Sea production 15% by the end of the decade, and industry lobby group Oil & Gas U.K. says the changes could spark an additional £4B ($5.96B) in capital investment.
  • Shares of BP and Royal Dutch Shell (RDS.A, RDS.B) - two companies with large assets in the North Sea - rose yesterday on the announcement.

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Comments (8)

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DAMNYOUMARKET profile picture
All this talk about UK taxes reminds me why the US fought the UK for freedom. Too many damn taxes!
Tree Doc profile picture
UK taxes are a bind - no question about that. Different society, can't be changed overnight, no need to change overnight. However, when CapEx intensive industries are bleeding, like oil is now, then Gov needs to adjust policy. Which they have done, quite rightly.
Tree Doc profile picture
Given the way Russia is going, Europe will need as much energy independance as it can get.

The North Sea has been heavily taxed for years preventing CapEx spending and encouraging players to move out of the market. Now in times of pain, it is not a moment too soon for some of this tax to be reduced to allow the industry to rebuild itself.

Concerning the larger question of over-supply, then all the producer nations need to agree on the limits. Oil is an expensive business to be in, and to allow any particular segment to become underfunded risks that segment being closed for ever. The North Sea has many aging facilities which don't need investment simply to produce, but to be kept in a state of repair that guarantees them a future. The tax reduction move by the British government has not come at the eleventh hour.
Fred Beyers profile picture
retired, I'm inclined to agree--but--we would be in disagreement with ALL the major crude producers as far as increasing investments (some will actually have small production increases even though cutting investments).

Of course, to the extent that it may have even a slight impact within the next couple years could certainly increase the pain for some (shale??) producers.

This hints at the possibility that the UK government might have more foresight than the management of XOM, COP, CVX, BP, etc., etc.

Who'd-a-thunk it???

Gollies, I darn near forgot--dividend maintenance, rather than corporate management, is the TOP priority for the companies listed.
The reality is that major energy companies (Exxon, BP, Chevron, et. al.) produce less than 15% of world production. Some 90+% of reserves are controlled by National Oil Companies (and major energy companies control less than 5% of reserves). Thus, capital expenditures by major energy companies have a relatively minor impact on long term production. Crude prices are more a function of OPEC output...and they have not cut production in the face of low prices...in an effort to cause shale producers and others to "go out of business." OPEC (and in particular Saudi Arabia) can do this since their cost of production is much less that the cost for shale producers and major energy companies.
Fred Beyers profile picture
"...The budget measures aim to boost North Sea production 15% by the end of the decade,..."

Now that seems to be a GOOD solution for an over supply!
Fred: Yes, short term, additional supply is not needed. However, by the end of the decade, the world may need that supply. No one can accurately predict demand nor the impact of current low prices on future production, and certainly not 5 years out.
11146471 profile picture
Really good news for the shareholders.

Lot's of discretionary income straight in our pockets.
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