While the UK government is likely to implement changes to the fiscal regime governing North Sea oil that will reduce the tax burden, the outlook for the country’s shale sector is less favourable to the industry, according to research and consulting firm GlobalData.
The company’s latest report states that UK chancellor George Osborne has indicated that he will introduce new tax breaks for the oil industry in the March 2015 budget, and the government may be able to legislate for such changes before the 7 May general election. In contrast, the investment climate for shale gas exploration and development is worsening.
Will Scargill, GlobalData’s Upstream Fiscal Analyst, says that barring a significant recovery in oil prices, it is also likely that the next government will move to further improve the UK fiscal regime’s attractiveness, but the extent of such moves will ultimately depend on the make-up of that government.
Scargill explains: “Any changes introduced by a Conservative government are likely to be tempered to an extent by its deficit-reduction targets, and it remains to be seen whether the Labour party will propose any incentives for the industry during the election campaign.
“However, with a hung parliament a strong possibility, the smaller parties’ policies may prove significant. In particular, the Scottish National Party (SNP) is likely to push for substantial tax cuts, as well as uplift and exploration-relief incentives, similar to those in Norway.”
The outlook is less promising for the shale sector, despite the UK government recently introducing the onshore allowance and removing access obstacles to shale development, as the result of the forthcoming general election will again have a considerable impact on future policies.
Scargill continues: “If the next government is once more led by the Conservative party, the policy stance towards shale is likely to stay broadly positive. However, the Labour party is currently ahead in the polls and its policy stance generally favours tighter regulation.
“The government has already been forced to accept proposals by Labour that will ban fracking in national parks, areas of outstanding natural beauty, sites of special scientific interest and groundwater source protection zones.”
The analyst concludes that if the next government is a coalition, smaller parties’ policies may play a key role, with the SNP and Green party both known advocates of a renewed moratorium on fracking.
The report can be accessed here: United Kingdom Upstream Fiscal and Regulatory Report
Adapted from a press release by David Bizley