The Chancellor delivered his Spending Review and Autumn Statement today.
There were no new fiscal measures directed at the oil industry apart from an announcement that government will commit up to 10% of shale gas tax revenues to a Shale Wealth Fund. They state that this could deliver up to £1 billion of investment in local communities hosting shale gas developments. The first tax revenues from this activity are likely to be some time off however.
Industry still awaits publication of the draft legislation giving effect to the extension of the scope of the Supplementary Charge Investment Allowance relief to certain non-capital discretionary operating expenditure and to expenditure on leased assets. The broad nature of that extension was outlined by the Treasury in October and will apply to expenditure incurred on or after 8 October 2015.
Discretionary spend will qualify if it meets the following tests:
Test 1
i) to increase the rate of production or amount of oil expected to be won,
ii) increase the potential for earning tariffs, or
iii) extend the economic life of a field, or part of a field, or upstream petroleum infrastructure.
Test 2: must not be routine repair and maintenance.
Test 3: must be included in one or more of the following classes of spend:
- facility renewal work;
- facility modification work
- production enhancement.
Expenditure on leased assets will qualify if
- It relates to a field or incremental project given development consent on or after 8 July 2015
- the lease is 5 years or more
- the asset is a mobile asset with the purpose of producing and/or storing oil,
- the asset is leased on arm’s length terms.
The financing charge inherent in the lease payment will not qualify. Similarly any part of the lease payment that represents the provision of services or staff under the lease is excluded.
There are a number of concerns around these provisions which are currently being raised with Government.
CW Energy
November 25 2015