Chancellor Philip Hammond intimated in his budget, yesterday, that he will investigate the use of tax incentives to make it beneficial for operators to purchase oil and gas fields, from the main operators such as Shell, helping to keep these fields productive for longer.

A panel of experts will be set up to talk through the issue, with a discussion paper on the industry to be published. While the announcement is only of discussions to “investigate” there is hope that a more relevant tax regime will produce benefits for smaller operators, encouraging them to take on marginal fields from existing operators.

 “As UK oil and gas production declines, it is absolutely essential we maximise exploitation of remaining reserves,” the Chancellor said.

At the moment oil and gas companies are obliged to “clean up after them” when production of a field ceases.  They are, however, entitled to tax relief on the cost of dismantling infrastructure when fields cease production – but the level of benefits can be dependent on how much tax the operator has paid during the life of the asset. This rule, it is suggested by industry leaders, means that companies acquiring oil and gas fields cannot claim relief based on tax the original operator has paid during the life of the asset. The hope is that this could change as a result of the promised review, allowing the acquiring operator to benefit from the value of tax relief previously acquired by the original exploration and production company.

If this comes to pass, it should encourage smaller operators to take on fields already partly developed and see them to a more complete utilisation of reserves and encourage the exploitation of marginal fields, in addition. The extension of useful life of the North Sea reserves will be good for the North East and good for the UK as a whole.