Tax break paves way for oil boom

Chancellor Alistair Darling announced tax breaks for the oil and gas industry yesterday that could trigger new investment of £14billion before the end of the decade.

The UK Government is to give the £1billion-plus tax boost to help kick-start production in remote gas fields west of Shetland – the last major area around Britain still to be developed.

The move will not only pave the way for massive new investment but is also expected to lead to the creation of 600 jobs and significant spin-offs for Scottish oil-service businesses.

In a second boost for the oil and gas industry yesterday, UK Energy Minister Lord Hunt revealed that a record acreage would be up for grabs in the 26th offshore licensing round.

Mr Darling said he was rushing through approval of the £160million-per-field relief before his spring Budget to avoid another summer season passing before work could start on the pipelines, oil and gas-gathering facilities and other infrastructure needed for Total’s Lagan and Tormore fields.

Half a dozen other fields in the area may be linked up to produce up to 4billion barrels of oil or equivalent – 17% of the Britain’s remaining oil reserves.

Roland Festor, UK managing director of Total E&P, which stands to benefit from £320million in tax relief, said the company was “very pleased with this positive proposal to encourage the industry to explore and develop the hydrocarbon resources of the area”.

He confirmed talks would start with Total’s partners on whether to give the project the go-ahead. Approval would mean gas starting to flow in 2014 from fields on the Atlantic fringe covering 168,785sq miles, halfway between Shetland and Faroe, in some of the most inhospitable waters in the world.

Oil and Gas UK chief executive Malcolm Webb said the concession could result in early investment of more than £2billion and another £12billion over eight years and “enhance the viability of future discoveries in this frontier area”.

He added: “It’s a positive example of what can be achieved by industry and government working together to deliver the maximum recovery of the nation’s oil and gas reserves.”

Aberdeen North Labour MP Frank Doran said: “This is extremely significant. Of all the areas of potential development, west of Shetland is the one where it is believed the vast majority of the remaining oil and gas will be discovered.”

Aberdeen South Labour MP Anne Begg said she and Mr Doran had lobbied Mr Darling before Christmas and were “absolutely delighted” than the scope of the so-called field allowance was being extended.

West Aberdeenshire and Kincardine Liberal Democrat MP Sir Robert Smith said: “It is months since the Commons energy and climate change committee recommended a go-ahead and, if the chancellor had waited any longer, he would have delayed a whole year’s production.”

SNP energy spokesman Mike Weir, who is MP for Angus, said: “It was high time the chancellor acted. West of Shetland is an important Scottish resource and I hope some of the profits created will come back into our economy.”

Lord Hunt said the tax boost for west of Shetland gas fields was “a major fillip to the industry and to the UK too”.

The Treasury was guarded about the extent of direct negotiations it had conducted with Total.

However, it appeared the company had secured most of the relief it claimed was necessary to make the fields viable at a time when industry confidence has been affected by falling gas revenues.

Mr Darling said he had ensured UK taxpayers would receive a fair return for the extraction of national resources and made it clear his aim was “maximising the economic exploitation of the UK’s reserves”.

He said his announcement “will continue to support investment in the North Sea, the fuel this delivers, the contribution this makes to our economy and the jobs and skills the industry supports and develops”.

He plans to secure Commons approval for an order amending the “new field allowance” by the end of March.

Under the relief, oil companies still have to pay corporation tax at 30% on the whole of their income from fields offshore. The £160million will be set against a further 20% due as a surcharge on profits from each qualifying field.

Experts believe there are at least six viable fields west of Shetland – and there may be more.