Monday, May 2, 2011

UK gas field may close in tax row

2 May 2011 Last updated at 01:40 GMT Morecambe field gas platform Morecambe Bay provides about 6% of the UK's annual gas needs Centrica, the owner of British Gas, says it might shut one of its major gas fields because of increased taxes.

The company is closing three fields in Morecambe Bay for a month of maintenance, and says it might not reopen one of them.

In his Budget, Chancellor George Osborne raised supplementary tax on oil and gas production from 20% to 32%.

Centrica says UK producers now face some of the highest taxes in the world.

The company has closed the Morecambe Bay North and Rivers gas fields for about four weeks' planned maintenance.

It is also shutting the South Morecambe field for an unspecified period of work, and the firm says it might not be restarted.

'Profitability can be marginal'

"UK oil and gas producing fields are now subject to some of the highest levels of tax in the world," a spokesman said.

"At these higher tax rates, Morecambe's profitability can be marginal ... Accordingly, we may choose to buy gas for our customers in the wholesale markets in preference to restarting the field after planned maintenance."

Morecambe Bay produces about 6% of the UK's annual gas requirements, or up to 12% of residential gas demand, according to Centrica.

The company says the tax increase means its North Morecambe field is now subject to a 62% tax rate and South Morecambe 81%.

The Chancellor's move, in his Budget in March, was designed to raise £2bn to fund a cut in fuel duty.

Industry bosses have criticised the new tax, describing it as short-sighted.

Mike Tholen from the industry body, Oil and Gas UK, says energy companies are working in a competitive industry and they are unhappy about three tax increases in the past decade.

He says: "I think companies are actually reflecting real concern for their shareholders because they are trying to manage long term businesses -- of which the UK is part of a much bigger portfolio for many companies -- and they just don't need this grief."

Industry leaders met the Chancellor to discuss the tax rise last month, and said they were "disappointed" that he disagreed with them over the impact of the tax.

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