Tax breaks back North Sea investment boom

A Maersk drilling rig in the North Sea.
Courtesy of Maersk Group
A Maersk drilling rig in the North Sea. Courtesy of Maersk Group

Over 700 oil and gas jobs are expected to be created by production companies BG Group and Denmark’s Maersk Oil as a result of new tax breaks for ultra-high-pressure high temperature (HPHT) projects in the North Sea.

 

A joint statement from the two companies today says £6Bn of investment is now likely to go ahead following UK Chancellor of the Exchequer George Osborne’s announcement in this week’s Budget of a tax relief that will cover 20% of the investment cost. Developing the two fields- Culzean and Jackdaw – will also support up to 8,000 other job opportunities along the supply chain, about half of them in Scotland.

 

The two fields are in the central North Sea, some 145 miles off the coast of Aberdeen in a water depth of some 92 metres. The gas produced could be equivalent to 10% of the UK’s gas demand. Further exploration activity is expected to be stimulated by this investment and the new tax regime.

 

Maersk Oil’s Chief Executive Jakob Thomasen said: “Today's announcement is a welcome development which can enhance the development prospects of the Culzean project and other HPHT projects in the North Sea. If sanctioned, the estimated Culzean investment would be more than £3 billion, with billions more spent over the operating life of the asset. Enabling projects of this scale is important for energy security, job creation and the supply chain and proof of the Treasury, DECC and the industry working together to achieve positive outcomes."

 

HPHT fields are challenging and costly to develop as pressures reach as much as 12,500 pounds per square inch at temperatures of 160C. The tax breaks for these developments was needed to boost drilling companies against a background of falling North Sea oil and gas output which is now some 38% lower than in 2010.

 

Recent industry estimates suggest oil and gas exploration and appraisal drilling in the North Sea fell 28% last year as costs continue to rise. The Chancellor also announced that he would take forward all the recommendations in the recent Wood Report aimed at maximising recovery of North Sea reserves. A review of the tax system affecting the oil and gas industry is also under way, the Chancellor confirmed.

 

 

 

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