UK Chancellor of the Exchequer, Alistair Darling said that he will bring in tax incentives to cheer the development of smaller oil and gas fields in the North Sea with the intend of pumping an additional two billion barrels equivalent of the remaining reserves. With immediate effect, a new allowance will decrease the tax that qualifying latest developments pay when they first commence producing oil and gas.
The government will also remove tax on gains from the sale or swap of North Sea fields, provided those profits are reinvested.
Darling said he will also modify rules that are now barriers to changing the use of exhausted oil and gas fields, for example by converting them into natural gas or carbon dioxide storage facilities.
The cushion gas used to pressurize gas storage facilities before they enter operation, which is a main cost for any storage developer, will be suitable for plant and machinery capital allowances.
UK oil and gas production is declining quickly and is down almost 40% from its peak at just over 4.6 million barrels equivalent per day in 1999. Many left over deposits of oil and gas are too small to interest international oil firms, but the smaller companies are struggling to lift up money to carry on their activities.
Exploration drilling in the UK North Sea fell 78% in the first quarter of 2009.