Newspaper headlines in the days after the 2012 budget tended to be dominated by two main issues: those relating to the withdrawal of concessions for pensioners and the new stamp duty land tax rates on residential properties. However, there were also significant announcements relating to oil, gas and cleantech that are of interest.

Field allowances for oil & gas

The changes and announcements affecting the North Sea Continental Shelf ("NSCS") are as follows:

  • A new £3bn field allowance will be introduced by statutory instrument in 2012. The allowance will focus on deep field operations relating to the more significant natural resource reserves off the West coast of Shetland, and the government has also announced that they will be seeking further industry investment into the area to accompany the new allowance.
  • The government allowance for small fields will be increased to £150m.
  • The size of field qualifying for maximum allowance will also be increased to 6.25m tonnes, equivalent to around 45m barrels. The allowance will be tapered, so that there will be no allowance for production in excess of 7m tonnes (equivalent to around 50m barrels).
  • The Finance Bill 2012 will enable the government to introduce targeted measures aimed at increasing investment in brown field sites, and the government will also engage with industry in order to develop opportunities for unlocking investment potential in such sites.
  • Finally, the government is to consider potential changes to the current allowance for High Pressure High Temperature ("HPHT") drilling fields. The North Sea is often considered to be a problematic site for HPHT drilling, due to the combination of both pressure and temperature. However, as the NSCS matures further, interest in HPHT has risen and is now more and more prevalent globally, including the Ranger drill site at the NSCS. The budget 2012 announcement on HPHT drilling is the clearest indication yet that the government considers it a viable way of extending the natural life of the NSCS.

Restriction on decommissioning relief for oil & gas

As opposed to the upstream developments in the budget, the changes to end-of-life decommissioning operations (which had previously been announced in the 2011 budget) will be less welcome by the industry.

With the NSCS operating as a mature field and with decommissioning of many supply lines due to begin in the next 15-20 years, oil and gas providers had been hoping for more guidance and support from the government with regard to the anticipated costs incurred in such decommissioning. Whilst there is still a great deal of uncertainty in relation to methods, timing and costing for such work, the government has begun to make budgetary announcements in relation to the decommissioning of oil and gas operations, as follows:

  • The Finance Bill 2012 will introduce a cap for any relief against the Supplementary Charge, and relating to expenditure incurred in decommissioning – this cap will be 20%.
  • For companies with ring-fenced trades, the scope of the extended loss carry back rules will also be extended.

Enhances Capital Allowances for energy-saving technologies

The list of technology entitled to Energy Capital Allowances ("ECA") treatment for capital allowances will be updated and expanded, with a new category of 'heat pump driven air curtains' being included in the list for the first time.

With the rate of capital allowances having recently been reduced (main pool and special rate pool being reduced from 20% and 10% to 18% and 8% respectively, as from 1 April 2012), the expansion of ECA technology will be a welcome relief for some companies who qualify for the 100% rate.

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