The British government announced fresh tax relief measures last week aimed at boosting output in the North Sea. The Oilholic’s first thought, after having scrutinised the small print, is that it’s a positive signal of intent from UK chancellor George Osborne following on from his 2012 union budget. In all fairness he is also looking to put the taxation measures of 2011 budget, which irked the industry, behind him.
From July 25th, new UKCS gas fields with 10-20 billion cubic metres (bcm) in reserves located at depths of less than 30 metres will be exempted from a 32% tax levy on the first £500 million (or US$776 million) of income. Shallow water offshore projects will still pay the 30% Ring Fence Corporation Tax on all income from the field.
UK Treasury figures suggest the measure is expected to cost £20 million per annum in reduced tax receipts, but the government reckons it would generate additional jobs and crucially bolster energy security.
Chancellor Osborne said, "Gas is the single biggest source of energy in the UK. Today the government is signalling its long-term commitment to the role it can play in delivering a stable, secure and lower-carbon energy mix."
A new UK gas strategy is expected this autumn and all indications are that the British will acknowledge the critical role of the gas market in meeting emissions targets alongside a mix of subsidy supported renewable projects. Another passive acknowledgement then that gas, not renewable energy platforms, would be the immediate beneficiary of a post-Fukushima turn-off?
In fact the Oilholic and quite a few others are convinced that gas-fired plants would play a more than complementary role in a future British energy mix. The latest tax relief, aimed at shallow water gas prospection is proof of this.
Derek Henderson, senior partner in the Aberdeen office of Deloitte, also believes the move builds on UK March’s Budget when a number of other reliefs were announced. “This announcement should further support investment, unlock potential gas reserves and increase long term production leading to additional employment and an increase in overall tax revenue,” he said.
“This encouraging action by the Chancellor also provides more evidence of the constructive dialogue that is taking place between industry and the Government. The politicians are demonstrating their commitment to gas, it is now up to the industry to respond with increased activity levels,” Henderson concludes.
Centrica pledged to invest £1.4 billion towards developing its Cygnus gas field with partner GDF Suez barely hours after the announcement of the tax relief. Six days later Prime Minister David Cameron came ‘up North’ to pledge his support to the sector.
“If everything goes well in the oil sector and the renewables sector, is really important, high-quality manufacturing. I think that's something to celebrate and something to stand up for," he said speaking at Burntisland Fabrications in Fife.
The company has just won a contract from Premier Oil to create structures for their platform destined for the Solan oilfield development, west of Shetland. Burntisland Fabrications said the contract will create an additional 350 jobs.
UK’s Department of Energy and Climate Change (DECC) greenlighted Premier Oil’s plans for the Solan oilfield in April. The field could produce up to 40 million barrels of oil, with a projected production commencement rate of 24,000 barrels per day from Q4 2014. Given the amount of activity in the area, looks like a lot work might be coming from developments west of Shetland and it’s great to see the Prime Minister flag it up.
Meanwhile oil giant BP posted a sharp fall in Q2 2012 profits after it had to cut the value of a number of its key assets. The company made a replacement cost profit, outstripping the effect of crude oil price fluctuation, of US$238 million over Q2; versus a profit of US$5.4 billion in the corresponding quarter last year. The cut in valuation was in a number of its refineries and shale play assets.
With the TNK-BP saga continuing, BP’s underlying replacement cost profit for Q2 2012, leaving out asset value reductions, dipped to US$3.7 billion versus US$5.7 billion noted in Q2 2011.
On the crude pricing data front, both benchmarks have not moved much week on week and price sentiment is still bearish ahead of FOMC and ECB meetings. Given that on the macroeconomic front, the global indicators are fairly mixed, Sucden Financial Research analyst Myrto Sokou believes crude oil prices will continue to consolidate within the recent range.
“We saw this today; trading volume remains fairly low as investors would like to remain cautious ahead of the ECB and Fed decisions,” she concluded.
Andrey Dirgin, Head of Research at Forex Club said, “On Tuesday’s trading session, September’s energy futures performed indifferently. Oil contracts didn’t manage to fix on their levels and moved slightly down. The nearest Brent Crude futures contract fell 0.21% to US$104.7.”
Away from pricing and on a closing note, the Oilholic notes another move in the African crude rush. This one’s in Sierra Leone. A fortnight ago, the Sierra Leone government provisionally awarded two offshore exploration blocks – SL 8A-10 and SL 8B-10 – to Barbados registered ODYE Ltd.
The said exploration blocks SL 8A-10 and SL 8B-10 contain 2584 sq.km and 3020 sq.km of prospection area respectively. According to the Petroleum Directorate of Sierra Leone, the exploration blocks consist of early to late Cretaceous oil prone marine source rocks, primarily shale, sand and shale basin floor fans, channelised sand sequences and potentially high porosity sands.
ODYE says it is looking forward to “working with the other participants in these provisionally awarded blocks, Chevron Sahara and Noble Energy” to develop the assets. So the West African gold rush continues. That’s all for the moment folks! Keep reading, keep it ‘crude’!
© Gaurav Sharma 2012. Photo: Andrew Rig, North Sea © BP Plc.