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Tax tweak to encourage North Sea oil investment

The government has tweaked the tax rules for North Sea oil and gas production after the protests that greeted the tax increases outlined in the Budget.

The Norwegian oil giant Statoil, which froze development of the 430 million-barrel Mariner field following the unexpected changes, said it would restart development at Mariner, ahead of a final investment decision at the end of 2012.

The statement from Statoil followed the Treasury announcement of an increase in the Ring-Fence Expenditure Supplement (RFES) for the North Sea fiscal regime, which will go up from 6 to 10 per cent. The change is designed to support investment in the North Sea, particularly in marginal fields.

In the Budget, the Chancellor announced a package of measures to address spiralling fuel costs. One was to up the "supplementary tax" on North Sea oil and gas production from 20 to 32 per cent, when oil prices rise beyond $75 per barrel.

But the announcement caused uproar in the oil and gas industry, in part because of the impact on the North Sea's ability to compete for global investment – particularly as its resources become scarce, and development more expensive. There were also warnings about the effect on investor confidence of such an unexpected change to the tax regime.

Industry insiders welcomed the changes, but stressed that they represented only a minor adjustment to a particular niche. The trade body Oil & Gas UK described the changes as "a first step in the right direction" but continued to push for further measures, including an extension of the allowance structure to help existing as well as new fields. Centrica announced a review of all its North Sea activities. It said it was still looking through the details yesterday.