Tax relief expected to boost North Sea oil deals

Petroleum News Alaska Staff

The British government recently announced a major tax concession for the U.K. oil industry, which it believes will lead to an increase in takeover deals in the North Sea.

U.K. Chancellor Gordon Brown said the decision to grant corporate gains tax roll-over relief from the sale of oil licenses is good news for the North Sea oil industry, noting that it will “boost employment and improve efficiency because operating costs will fall.”

Most businesses are eligible for the tax relief which allows them to sell one asset and then use the proceeds to buy another without paying any immediate taxes. Since 1987 any oil company selling an interest in a U.K. oil license has had to pay tax on the profits, even if the profits are immediately reinvested in another license. Several deals have fallen apart because of the tax, according to the July 2 edition of The Scotsman.

The tax concession is expected to spur takeover deals and asset swaps among North Sea operators because it will allow them to shuffle their holdings and gain efficiencies from forming larger operations.

The Scotsman reported that the cost to the government is expected to be negligible as the loss of tax under may be offset by the higher tax yield from the industry’s improved performance.