North Sea oil and gas producers received a boost from the government today as chancellor Philip Hammond announced tax changes aimed at increasing investment. "This tax measure should help complete deals more quickly and in a more efficient way", Michie noted. "That largely reflects a lower outlook for sterling oil prices (due to a lower dollar oil price in most years and a stronger pound) and weaker gas prices reduce revenues by £0.3 billion a year".
Despite recent small increases in the price of oil, it will remain below $60 per barrel in the period up to 2022/23.
Decommissioning remains a sticking point in many North Sea negotiations because the original operator is ultimately responsible dismantling the fields with buyers unwilling to take on the costs without the tax breaks.
They will enable the current owners of mature producing fields to pass some of the corporate tax history of the current owner to the buyer, thus enabling the buyer to be in broadly the same tax position as the seller.
"We welcome these reforms from the chancellor today as the cost of decommissioning older fields is becoming increasingly troublesome, with current tax rules deterring M&A in the sector", said Ewan MacKinnon, investment director at Maven Capital.
"The much anticipated Budget announcement, that legislation will be enacted to allow transfers from 1 November 2018, will be warmly welcomed by industry".
Oil & Gas UK analysis of 23 UK asset transfers since 2011 reveal that deals have extended field life by nearly five years on average.
Decommissioning remains a sticking point in numerous negotiations as the original operator of North Sea fields retains ultimate responsibility for its dismantling. "This means the buyer perceives the field to be less attractive commercially, partly because they are unlikely to be able to access the same level of tax relief than the current owner when decommissioning".
"Decommissioning is a significant factor when deciding whether to invest in the North Sea and the ability to transfer tax history for oil and gas fields is a welcome first step to help to address this concern", said Andrew Benitz, chief executive of Jersey Oil & Gas - an AIM-quoted group with plans to acquire producing mature North Sea assets.
Finance Secretary Derek Mackay said the help for the oil and gas industry was welcome but "overdue".