UK: Budget 2009 - Changes To Oil & Gas Taxation

Last Updated: 24 April 2009
Article by Bob Palmer, Richard Croker and Ted Rhodes

The Government has reacted to a dramatic drop in North Sea drilling activity by unveiling a suite of changes to the oil and gas tax regime aimed at cushioning the impact of the declining oil price. As oil prices have fallen from $147 a barrel in July 2008 to less than $50 a barrel today and financing has dried up in the wake of the credit crunch, figures released by Deloitte this month showed that exploration drilling had collapsed by 78% in the first quarter of 2009 compared with the same period in 2008.

Field Allowance

The Government has announced plans to introduce a "field allowance" that may be set off against the supplementary charge (reducing the tax rate from 50% to 30%) for certain fields that are given development consent on or after 22 April 2009. The field allowance is available for small fields, heavy oil fields and high pressure/high temperature fields and the amount of allowance per field is capped as follows:

  • Up to £75m for fields with oil reserves (or gas equivalent) of 2.75m tonnes or less, reducing on a straight line basis to nil for fields over 3.5m tonnes. In any one year the maximum field allowance is £15m.
  • Up to £800m for fields with a gravity of less than 18API and a viscosity of more than 50 centipoise at reservoir temperature. In any one year the maximum field allowance is £160m.
  • Up to £800m for fields with a temperature of more than 176.67°C and pressure of more than 1034 bar in the reservoir formation. In any one year the maximum field allowance is £160m.

Chargeable Gains

The new budget proposals will also amend the law relating to taxation of chargeable gains as follows:

  • No chargeable gain will arise on the swap of UK/UKCS licences to the extent that the value of one licence matches another that it has been swapped for. This brings the treatment of developed assets into line with the treatment of undeveloped ones.
  • No chargeable gain will arise where the proceeds from the disposal of a chargeable ring fence asset are reinvested in another chargeable ring fence asset.

Decommissioning & Change of Use

The final major category of changes to be introduced by the new budget relate to the availability of tax reliefs for decommissioning costs. The proposals are as follows:

  • Where oil and gas assets are subsequently used for another purpose such as gas storage, carbon sequestration or offshore wind projects ("change of use"), the costs of eventual decommissioning may be set off against Petroleum Revenue Tax ("PRT") in the case of a PRT asset or ring fence profits and carried back in the same way as for assets that have not been subject to a change of use. This amendment is intended to encourage the reuse of offshore infrastructure for these alternative purposes.
  • Companies will be entitled to PRT relief for decommissioning costs even when those costs are incurred after the expiry of the relevant licence. On the other hand, income that may arise in respect of the relevant assets after expiry of the licence shall also be subject to PRT.
  • Capital allowances for decommissioning costs will only be available where the costs are incurred to comply with:

    (a) an approved abandonment programme;

    (b) any condition to which the approval of an abandonment programme is subject; or

    (c) any other condition imposed by, or agreement entered into with, the Secretary of State for DECC in relation to decommissioning.

In addition, the expenditure must have been incurred and paid in respect of decommissioning work carried out during the accounting period in question. This amendment is intended to avoid companies accelerating receipt of their capital allowances by, for example, paying an affiliate in advance to carry out the decommissioning when required.

The budget also proposes a number of more minor amendments and the full detail of the changes will be contained in the Finance Bill to be released on 27 April 2009.

The budget proposals have been generally well received by industry bodies, although operators' groups have stressed that this should be the first step in a continuing dialogue with the Government aimed at prolonging the economic life of the North Sea. They have pointed out continuing difficulties with sustaining production at older fields, opening up frontier areas West of Shetland, ensuring access to offshore infrastructure, and decommissioning.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 24/04/2009.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.