(MENAFN- ProactiveInvestors) Small and mid-sized North Sea oil firms rallied as George Osborne threw Britain's ailing offshore oil industry a life line.
Osborne in what could be his final budget has promised £1.3bn worth of support for the North Sea via tax cuts on production revenues as well as relief on supplementary charges and tax allowances for oil companies.
The taxes on petroleum revenues will be cut to 35% from 50% from next year while the change in supplementary tax to 20% from 30% will be backdated to January 2015.
Industry experts had called on Osborne for relief amid falling crude prices and reduced investments from squeezed oil companies.
UK fiscal watchdog the Office for Budget Responsibility (OBR) predicts the Chancellor's new measures can support a 15% uplift in North Sea oil production by the end of the decade.
“Today’s announcement lays the foundations for the regeneration of the UK North Sea" said Malcolm Webb chief executive of offshore industry group Oil & Gas UK.
"The industry itself must now build on this by delivering the cost and efficiency improvements required to secure its competitiveness.”
Explorers are set to benefit from a simplified scheme for tax allowances. This new 'investment allowance' would allow early stage spending to be offset in the future once projects begin generating revenues.
The apparent winners included () Parkmead () and ().
Deutsche Bank analyst Lucas Herrmann prior to the budget speech questioned what impact tax cuts would actually have on the ailing sector given that many listed oil companies already have accumulated substantial losses - and therefore don't pay tax anyway.
"Whilst lowering the tax burden would clearly be supportive it remains tough to envisage a package of measures that would meaningfully enhance the value of UK assets.
"In large part this is down to the industry already accumulating significant tax losses to offset against future taxable income.
"As a consequence only a handful of companies are in tax paying positions meaning a lower tax rate would have a negligible positive impact."
Numis analyst Sanjeev Bahl meanwhile suggested that improved fiscal terms may lure consolidators of distressed assets and companies.
"We conclude that there is little the government can do from a fiscal perspective to help boost short-term E&P [exploration & production] cash flows but simplification of the current tax regime removal of PRT and introduction of a ‘Basin wide allowance’ could re-invigorate M&A [mergers & acquisitions] appetite and the UKCS [UK continental shelf] asset market" Bahl said in a note.
Michael Burns energy partner at law firm Ashurst: "The fact that tax cuts have been offered by the UK Government to the oil and gas industry today does not come as a huge surprise.
"It's clear that the Government could not ignore the strong evidence of recent months that substantive fiscal relief is a critical part of sustaining North Sea activity.
"Ultimately while the various structural changes being brought about as a result of the Wood Review have been welcomed by the industry the right fiscal terms are key to the future of the oil and gas industry in the UK.
"The fundamental question is whether what is being offered is enough to make a real difference."
**FIRST PUBLISHED MARCH 18
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