Showing posts with label corporation tax. Show all posts
Showing posts with label corporation tax. Show all posts

Friday, March 22, 2013

By ‘George’! In shale we (Brits) trust?

Delivering his 2013 budget speech on March 20, UK Chancellor of the Exchequer George Osborne told a boisterous bunch of British parliamentarians that "shale gas is part of the future and we will make it happen."
 
He added that the government will publish guidelines by June which would set out how local communities could benefit from “their” unconventional gas resources. The UK lifted a temporary moratorium on shale gas fracking in December 2012 after much procrastination.
 
At the time, it was announced that the government would establish a new Office for Unconventional Gas with an emphasis on shale gas and coal-bed methane and the role they could play in meeting the country's energy demand. If anyone doubted the UK government’s intent when it comes to shale prospection, this is your answer. Sadly, intent alone will not trigger a shale revolution.
 
The Oilholic has always maintained that a swift British replication, or for that matter a wider European replication, of a US fracking heaven is unlikely and not just because there isn’t a one size fits all model to employ.
 
The shale bonanza stateside is no geological fluke; rather it bottles down to a combination of geology, tenacity and inventiveness. Add to that a less dense population than the British Isles, a largely conducive legislative and environmental framework, and a far superior pipeline network and access equation.
 
Furthermore, as Chatham House fellow Prof. Paul Stevens pointed out last week, “The American shale revolution got where it is today through massive investment, commitment towards research and development and over two decades of perseverance. I don’t see that level of commitment here.” Neither does the Oilholic.
 
Agreeing with Stevens is Dr. Tim Fox, head of energy and environment at the UK Institution of Mechanical Engineers, who opined that it was important for government not to see shale gas as the “silver bullet many claim it is”.
 
“Shale gas is unlikely to impact greatly on energy prices in the UK and we must avoid becoming hostage to volatile gas markets by not being over-reliant on gas,” he added.
 
Well at least the Chancellor is trying to do something and you can’t beat a man down for that. Especially as that is not the only thing he’s trying on the energy front. Addressing the subject of decommissioning in the North Sea, Osborne said the government would enter into contracts with companies in the sector operating in the offshore region to provide "certainty" over tax relief measures.
 
The proposals are also designed to allow the tax effect of decommissioning costs to be sufficiently certain to allow companies to move to a post tax calculation in field security agreements. Andrew Lister, energy tax partner at KPMG, notes, "With hundreds of such agreements in the North Sea it will take many months to understand whether the proposals have had the desired result of freeing up capital and making late life assets more attractive for new investors."
 
"Nonetheless, the oil & gas industry in the North Sea – having endured the shock tax announced in the Budget two years ago – will welcome the announcements on decommissioning certainty, which should support extraction of the UK’s precious oil resources to the tune of billions. Certainty on tax relief for decommissioning costs will encourage companies to invest in the North Sea as the proposals should provide the assurance companies have been wanting on the availability of tax deductions," he added.
 
Osborne also revealed the two successful bidders for the government’s £1 billion support for Carbon Capture and Storage (CC&S) projects as – the Peterhead Project in Aberdeenshire and the White Rose Project in Yorkshire. Away from the direct fiscal measures, one particular move made by the Chancellor also has implications for the energy sector.
 
He pledged to abolish the stamp duty levied on small company shares traded on markets such as the London Stock Exchange's AiM, to end what he described as a "perceived bias" in the tax system "favouring debt financing over equity investment". You could hear the cheers in the City within minutes of the announcement.
 
The London Stock Exchange, for its part, described the move as a “bold and decisive growth-orientated policy…” to which the Oilholic would add, “a policy that would improve the take-up of shares in small independent oil & gas upstarts who often list on the AiM.”
 
Finally, moving away from the UK budget, but sticking with Parliament, the Oilholic recently had the pleasure of meeting and interviewing Margaret Hodge MP, chair of the UK public accounts committee, for CFO World (for the full interview click here). This veteran parliamentarian has taken upon herself and her committee to make the issue of corporate tax avoidance a mainstream subject in the UK.
 
Ever since it emerged last year that the likes of Starbucks, Amazon and many others were employing aggressive tax avoidance schemes to mitigate their British tax exposure, Hodge has been on the case. They quipped "we’re not doing anything illegal", she famously quipped back, "we’re not accusing you of being illegal; we’re accusing you of being immoral!"
 
End result, we’ve got everyone from the OECD to the G8 discussing corporate tax avoidance. And oh – Starbucks are 'voluntarily' paying more tax in the UK too! That’s all for the moment folks! Keep reading, keep it ‘crude’! 
 
To follow The Oilholic on Twitter click here.
 
© Gaurav Sharma 2013. Photo 1: Big Ben and the Houses of Parliament, London, UK © Gaurav Sharma. Photo 2: Margaret Hodge MP, chair of the UK public accounts committee (left) with the Oilholic (right) © Gaurav Sharma.

Wednesday, December 05, 2012

A ‘crude’ autumn statement in a freezing UK

UK Chancellor of the Exchequer George Osborne finally got around to delivering his 2012 ‘autumn’ budget on a freezing December afternoon here in London today and there was plenty in it for the Oilholic to mull over. To begin with, in a highly populist move, Osborne not only postponed a 3 pence (5 US cents) rise in UK fuel duty but scrapped the tax measure on motorists altogether. This was followed by an announcement that the Government will set up a new Office for Unconventional Gas with an emphasis on shale gas and coal-bed methane and the role they could play in meeting the country's energy demand.
 
Osborne also announced a consultation exercise with the possibility of new tax incentives for the shale gas industry which is currently in its infancy here. Shale could very well become a part-player in the UK government’s latest strategy as conventional North Sea gas production declines.
 
The Chancellor also said that the UK’s headline rate of corporation tax would fall to 21% in 2014, from 22% in 2013. Additionally, plant and machinery investment allowance was raised from £25,000 to £250,000; duly cheered by independent contractors. Summing up the motive behind his ‘crude’ moves, the Chancellor urged investors to: "Come here, create jobs here; Britain is open for business. This would be the lowest rate of (corporation) tax for any major Western economy."
 
Once Osborne's statement had ended, the Oilholic sought feedback from the crude men around.
 
Robin Cohen, partner in Deloitte’s Energy & Resources practice, felt the government’s positive messages on the potential for shale gas, although tempered by realism on the timelines and challenges for the sector, will be welcomed by those involved in developing a potentially significant future energy resource for the UK.
 
“Recent energy pronouncements from the government and its gas generation strategy reinforce the dramatic (recent) changes in the character of the country’s electricity market from an investor’s perspective. Rather than assessing the viability of future power generation projects by analysing supply, demand and the resulting market prices, investors now need to anticipate the aggregate effect of several key policy measures, some of which have no track record as yet,” he added.
 
These include the carbon price floor, contracts for differences (CFDs) within the levy control framework, the capacity mechanism and the UK’s response to the EU target model for electricity markets. “While the strategy will be broadly welcomed by investors, it highlights the limits to the level of future certainty that the Government can provide,” Cohen added.
 
Anthony Lobo, Head of Oil and Gas at KPMG UK, also said the government's plan to consult on an appropriate fiscal regime for shale gas exploration is a positive sign for the industry.
 
“The UK has been seen as a negative place to invest recently due to very high levels of fiscal uncertainty. The tax increases in 2011 resulted in lowest levels of investment in years. Production also plummeted by 19% in 2011 predominantly as a result of the increase in supplementary charge, this drop negated any tax revenues the government hoped to realise. The announcement today signals the government's intent to support investment in Oil and Gas,” he added.
 
Tim Fox, Head of Energy and Environment at the Institution of Mechanical Engineers, felt the Chancellor had provided some very welcome clarification as to the role of gas in bridging the looming energy gap mid-decade. “It is sensible for the UK to invest in gas-fired power plants at this point in time as they are cleaner than coal, needed to back-up intermittent renewable energy sources, and can be built quicker with much lower up-front costs than nuclear plants,” he said.
 
“News that the Government will set up a new Office for Unconventional Gas is positive…Unconventional has the potential to create thousands of high-skilled engineering jobs and export services over the next decade,” Fox added.
 
There you are! The advisory firms like what the Chancellor said, the engineers and tax consultants did too – now only future investors and big energy companies need convincing. That’s all from the UK House of Commons folks!
 
But before yours truly takes your leave, it emerged overnight that Aberdeen-based Faroe Petroleum has bagged a provisional Icelandic exploration licence in the Dreki area. The company said it was "very excited to get the opportunity to explore and de-risk these extensive prospects” encompassing seven blocks located inside the Arctic Circle to the north east of the Iceland.
 
Faroe added that the move was an important extension of its frontier exploration portfolio in the UK west of Shetlands, Norwegian Sea and Norwegian Barents Sea. Graham Stewart, chief executive of Faroe Petroleum, said, "As with our Norwegian Barents Sea licences, this new Icelandic (Jan Mayen Ridge) licence has significant hydrocarbon potential, and is located in ice-free waters."
 
So on an Arctic note, let’s hope Faroe has better luck than its Scottish cousin Cairn Energy has had (so far) in its icy foray. Keep reading, keep it ‘crude’!
 
© Gaurav Sharma 2012. Photo: Oil Rig, North © Cairn Energy

Contact:

For comments or for professional queries, please email: gaurav.sharma@oilholicssynonymous.com

To follow The Oilholic on Twitter click here
To follow The Oilholic on Google+ click here
To follow The Oilholic on Forbes click here