BP to speed up North Sea development: Changes in tax rules make pounds 2bn project more attractive

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The Independent Online
BRITISH Petroleum is to accelerate a pounds 2bn development of nine fields in the North Sea because of government plans to scrap petroleum revenue tax (PRT). New tax rules make the project much more commercially attractive.

The announcement yesterday coincided with an attack from Labour on the proposed changes. Alistair Darling, Labour's Treasury and economics spokesman, will call in a Commons debate today for a delay in implementation of the new tax regime.

BP said the development of the fields, in the central sector of the North Sea, north-east of Aberdeen, had been given 'significant impetus' by changes to the tax regime announced in the Budget.

A spokesman said that three of the fields would have had to pay PRT under the old tax regime but would now be exempt. He added that the altered economics of developing fields meant BP would be announcing further projects that would otherwise have not been viable.

The Chancellor's proposed changes will see PRT scrapped on new developments and cut from 75 to 50 per cent on existing projects. Exploration companies will no longer be able to offset the cost of looking for oil against the tax they pay on production.

The changes have been criticised for penalising small companies at the expense of large producers such as BP and Shell, which stand to gain millions of pounds in lower tax payments. Small exploration companies will no longer be able to offset up to 83p of every pound spent on exploration against tax.

Mr Darling said yesterday that the new tax rules meant that Britain would be subsidising development overseas.

'The fundamental question so far as the UK economy is concerned is whether oil companies will re-invest their new-found profits in the North Sea or in other parts of the world.'

He added that 'Britain could become an importer of oil through yet another blunder by the Chancellor, whose judgement has yet again been called into question'.

BP rejected that view, saying that the release of funds that would otherwise have been paid in tax was one reason why the proposed development was now feasible. The levelling out of tax exposures between BP and its partners, which include Shell, Esso and Lasmo, had also speeded up talks.

The nine fields, part of the Eastern trough area, are estimated to contain reserves of 650 million barrels of oil equivalent, including 1,200 billion cubic feet of gas. BP's share amounts to about half the total.

Production is expected to begin in 1998 with peak production running at about 150,000 barrels a day. BP, which is likely to be the operator on the project, currently pumps about 450,000 barrels a day from the North Sea.

(Photograph omitted)