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Fiscal Comparison/Exploration Attractiveness
the traditional Seaward Production Licence but has a lower rental fee and will expire within two years if the licensee does
not have a work programme in place.
Seaward Production Licence (Frontier)
In 2004, another new type of Seaward Production Licence was introduced. This type of licence was introduced to
encourage exploration in larger areas, by extending the initial exploration term to six years. These licences have an
initial period of three years with rental for these years set at 10% of the Traditional Licence rental. At the end of this
period 75% of the acreage must be relinquished. The Licensees then have a further three years in which to complete a
work programme, after which time a further 50% of the remaining acreage must be relinquished.
Seaward Production Licence (West of Scotland Frontier)
The most recent variant on the Seaward Production Licence was introduced in 2010. This licence was introduced
specifically for exploration in the harsh operating environment in the West of Shetland area. The licence is similar to the
Frontier Licence, but with an initial term of nine years. These licences must contain significant seismic acquisition, as
geophysical data is sparse in the area.
Petroleum Exploration and Development Licence (PEDL)
The PEDL is a landward licence enabling the holder to explore and exploit the reserves contained within the licence
area. The PEDL was first awarded during 1996.
Corporate Income Tax
Corporation tax is applicable at 30% of the upstream profits of a company. The normal deductions apply when
calculating corporation tax profits, including value allowance (where applicable), operating costs, capital allowances
(depreciation), any losses brought forward from previous years and interest costs. In addition any Petroleum Revenue
Tax (PRT) payable is also deductible against corporation tax profits.
Supplementary Charge
In April 2002, the UK government announced the introduction of a 'Supplementary Charge' chargeable on the upstream
profits of a company. The Supplementary Charge was set at 10% when introduced, but has been increased periodically
to its current rate of 32%. Since 2009, Value Allowances have been introduced to encourage investment in more
challenging projects.
Petroleum Revenue Tax (PRT)
PRT was abolished for all fields that gained development approval on or after 16 March 1993 but remains payable by all
fields developed prior to this date. In practice the majority of fields which gained development approval before this date
do not pay PRT because of the operation of various reliefs, chiefly oil allowance and safeguard which ensure PRT is only
paid on the larger more profitable fields. As a rule of thumb PRT is unlikely to be payable on fields with reserves of less
than 100 million barrels.
Other Taxes
There are no environmental taxes applied. However, the European Union Emission Trading Scheme (EUETS) has been
in place since 2005. From Phase III in 2013 the EUETS will have greater commercial impact as operators will be
required to purchase EUAs for each tonne of CO2 generated from electricity production. Prior to this installations are
awarded free European Union Allocations (EUAs), or carbon permits, based on a benchmark of historical emissions..
EUETS Costs
The Wood Mackenzie carbon price assumption for UK installations participating in the European Union Emissions
Trading Scheme (EUETS) in nominal terms is €21.11/CO2 tonne in 2013, €23.66/CO2 tonne in 2014 and €27.81/CO2
tonne in 2015.
Royalties
Royalty is no longer payable by any field following its abolition on 1 January 2003.
Scientific Research Allowance
Exploration costs are treated as scientific research expenditure and are eligible for scientific research allowance. This
allowance is at the rate of 100% enabling the immediate write-off of such costs. In the case where a company has no
production, the loss can be carried forward.
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