Insight
UK Budget 2016: a competitive tax regime for an ultra mature basin
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Report summary
The UK upstream oil and gas industry is going through a major cost reduction phase in response to continued low oil prices. However many operators are still in cash-flow negative position. Chancellor George Osborne announced three fiscal measures to support the United Kingdom Continental Shelf (UKCS). A reduction in the rate of Petroleum Revenue Tax (PRT) from 35% to 0%, a reduction in Supplementary Charge Tax (SCT) from 20% to 10% and an extension of the Investment and Cluster Area Allowances to include tariff income. We calculate a transfer of value (NPV10 at 1 Jan 2016) of the UKCS from the government to the companies, by around £3 billion, taking the company value from £26 billion to £29 billion.
Table of contents
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Executive summary
- Background
- SCT reduction
- PRT zero rated
- Investment/Cluster/Onshore allowances
- Implications
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Model field analysis
- Company and project value impact
- How does Budget 2016 impact exploration?
- Retained decommissioning liabilities – Budget brings tax relief certainty
Tables and charts
This report includes the following images and tables:
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Value transfer for the UKMarginal tax rateGovernment share with varying oil price
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IRR with varying oil priceGovernment share and IRR at US$60/bbl: varying project cost baseInternational fiscal comparisonRetained decommissioning liabilitiesProject impactCompany impact
What's included
This report contains:
