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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.

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    UK Budget 2016: a competitive tax regime for an ultra mature basin

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    UK Budget 2016.xls

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Table of contents

    • Background
    • SCT reduction
    • PRT zero rated
    • Investment/Cluster/Onshore allowances
    • Implications
      • 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 9 images and tables including:

Images

  • Value transfer for the UK
  • Marginal tax rate
  • Government share with varying oil price
  • IRR with varying oil price
  • Government share and IRR at US$60/bbl: varying project cost base
  • International fiscal comparison
  • Project impact
  • Company impact

Tables

  • Retained decommissioning liabilities

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