Contact: Danielle Anthony
Deloitte
PR Manager
+ 44 (0) 207 303 3861
Julian Small, Energy Tax Partner at Deloitte, commented in reaction to today's Budget announcements:
"Following an initial announcement in the 2005 Pre-Budget Report, it has been confirmed today that the rules for valuing non arms length oil sales are to be changed with effect from 1 July 2006. The detailed technical changes introduced today follow a period of consultation with the oil industry and are intended to remove perceived tax distortions to commercial decision making because of the higher than normal tax rates which apply to North Sea oil & gas extraction (50-75%) relative to oil trading activities (30%).
"The changes in the oil valuation rules will not come as a surprise to the industry as these have been the subject of discussion. There has been much debate about the extent to which such changes could affect London's position as an oil market with the possibility that the changes will reduce the volume of oil trading activity undertaken here.
"Consultation has been announced today on whether there are barriers to the commercial deployment of carbon capture and storage (CCS), including the possibility of tax incentives. In a North Sea context the concept of CCS is to capture CO2 from gas production, allowing the resulting hydrogen to generate clean electricity. The CO2 would then be reinjected into North Sea oil & gas fields possibly leading to enhanced oil recovery.
"With regards to Carbon Capture this will be a welcome announcement for companies such as BP which are actively looking at the possibility of deploying such technology in a North Sea context. This is particularly exciting given the environmental benefits and potential for material additional production from the North Sea which might result."
Notes to editors
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