Taqa Bratani, the UK North Sea focused arm of the Abu Dhabi Energy Company, is set to start a major new drilling program, buoyed by the prospect of fixed tax incentives to be aired in the UK’s budget this Wednesday.
CEO Carl Sheldon says that Taqa worldwide will invest $2-2.2 billion in capital expenditure this year, and the North Sea’s slice of this will see the company drill “between five and ten” exploratory wells, and build on its burgeoning exploration staff.
2011 saw Taqa Bratani’s North Sea production rise 15% to 42.9million barrels of oil equivalent a day. Annual net profits at Taqa were down in 2011 from 2010, due to the UK’s 12% tax hike on North Sea oil profits and difficult drilling in Canada.
The tax hike, which caught the industry by surprise and was followed by signals of disinvestment across the upstream oil industry operating in the North Sea. The UK’s Chancellor George Osborne then negotiated a fudge to undo some of the damage, and in his 2012 budget is due to make a firm commitment to North Sea producers that they will be entitled to a tax break for decommissioning and dismantling old rigs.
The government is hoping that by making a fixed commitment to offering a 50-75% tax break on decommissioning work by signing contracts with companies – removing the uncertainty of future budget tax grabs – it can spur an additional $27 billion of investment in the North Sea.
Independent estimates suggest that certainty over decommissioning tax relief would lead to the recovery of 1.7bn barrels of oil and gas equivalent that would otherwise be left in the ground, in significant part by encouraging the largest oil firms to sell off their older assets to smaller specialised outfits like Taqa Bratani, which has successfully exploited the $682 million of exploration blocks it signed for from a Shell/Esso joint venture in 2008 and the Otter field that it took from Total, into which Taqa has subsequently poured a further $430 million.
Decommissioning costs, exacerbated by the historical instability of UK taxation of North Sea oil, have gradually become a major obstacle to this secondary round of North Sea investment.
