Tax breaks worth millions offered for west of Shetland gas development

Tax breaks worth millions of pounds are to be offered to firms to encouarge the exploration and development of deep water gas fields to the west of Shetland, it has been announced by the UK government.

Subject to parliamentary approval, chancellor Alistair Darling said the area would be eligible for oil field allowance, which exempts a proportion of income from the supplementary charge that firms pay the government on top of corporation tax.

“The area to the west of the Shetland Islands is the last major area in the UK continental shelf to be developed and infrastructure is critical to fully unlocking the gas potential of the region,” Darling said in a statement to parliament.

“It is estimated that the area contains around 20 percent of the UK’s remaining oil and gas reserves.”

Companies interested in exploiting the estimated four billon barrels of oil and gas equivalent will receive up to £160 million in tax relief for each field.

French oil company Total, which plans to build a pipeline to Sullom Voe to bring gas ashore from the Laggan and Tormore fields, is understood to have been lobbying for the tax breaks, suggesting to ministers that without them it would be uneconomic to carry on with the work.

For its part, the government is keen to see the reserves developed to cut Britain’s reliance on overseas gas as production from North Sea fields declines.

Roland Festor, Total UK’s managing director, said: “The financial incentives announced by the government may make a critical difference in respect of the project’s economic viability.”

Graham Stewart, chief executive of Faroe Petroleum, which has made several discoveries in the region, said: “If Total goes ahead, the country – and our portfolio – will benefit greatly. The UK has a growing dependence on foreign gas and so fiscal policy should be used to help develop our own indigenous supply.”