Intelligence brief: GoM output still rising; Premier eyes tax offsets with North Sea purchase
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GoM oil production rising – barely
Production in the Gulf of Mexico continues to grow, but only just, even with the benchmark spot oil price sliding to less than $30 per barrel.
GoM production was 0.1 million barrels-per-day (MMbbl) higher in the US Energy Information Administration’s (EIA) January 2016 estimate than nine months earlier. Total US production has fallen 0.5 MMbbl/d since April. The EIA estimates production will decrease from an average of 9.4 MMbbl/d in 2015 to 8.7 MMbbl/d in 2016 and 8.5 MMbbl/d in 2017.
The number of rigs actively exploring for or developing oil or natural gas in the GoM stood at 27 in the second week of January, almost half of the 53 recorded by Baker Hughes in its weekly rig count in the corresponding period last year.
Premier eyes tax offsets with North Sea acquisition
Premier Oil’s proposed $120 million acquisition of E.ON’s North Sea assets comes with about £250 million (US$360 million) in historic tax payments to be recouped upon future decommissioning expenditure, Premier told the London Stock Exchange.
The deal also outlines a mechanism by which E.ON will share the costs of decommissioning the Ravenspurn and Johnston fields, scheduled to take place in 2019-21, up to an agreed cap.
E.ON has incurred tax losses of about £500 million over the duration of its operations in the North Sea, a Premier Oil spokesperson told DecomWorld.
Under a new tax regime introduced in the UK in 2013, businesses undertaking decommissioning projects are entitled to tax reliefs of up to 50% on historic tax losses, or 75% for older fields.
In a note on the new tax regime last year, PwC noted that firms could generate a new business model worth billions by “collaborating better and exploiting tax reliefs” in regard to decommissioning projects. The UK has also introduced the Decommissioning Relief Deed, a contractual guarantee that cannot be overridden by future legislation, ensuring government refunds will not be lower than those outlined under the new rules.
Union calls for expedition of UK offshore decom
The GMB general trade union has urged the UK government to ensure there are no delays in offshore decommissioning, warning that to do otherwise would be “catastrophic” for jobs and investment.
Failure to do so “will almost certainly ensure UK yards in Scotland and the north-east of England will miss out on the opportunity decommissioning presents with work going abroad and expertise being developed in places like Norway, not the UK,” the union wrote in a letter to Amber Rudd, Secretary of State for Energy and Climate Change.
About 65,000 workers, or 15% of all employees in the UK’s offshore oil and gas sector, lost their jobs in the 20 months from January 2014, industry trade body Oil & Gas UK said in a September 2015 report. BP last week confirmed it would lay off 20% of its 3,000 North Sea employees and contractors.
GMB expressed its concern that the Energy Bill due for a second reading in the lower house of parliament on January 18 was over-emphasizing the role of the government’s Oil and Gas Authority in promoting carbon capture and storage “at the expense of necessary decisions that need to be taken regarding offshore installation decommissioning”.
If the bill passes, the OGA will be required to develop facilities for carbon storage as part of efforts to meet targets set out in the Climate Change Act 2008, which stipulates that the UK carbon account for 2050 be lower than the 1990 baseline.
The bill also outlines a principle objective of maximizing the economic return of UK petroleum, while retaining oversight of the decommissioning of oil and gas infrastructure, and securing its re-use for transportation and storage of greenhouse gases.
According to CMS Legal Services, one of the primary implications is that operators of offshore installations will have to comply with the OGA’s strategy. A public consultation on a draft strategy was supposed to take place in the second half of 2015, but that draft has yet to be published, CMS noted.