New sector regulation breathes life into the UK Oil and Gas industry – country risk report
In-depth Country Risk Report - United Kingdom
Throughout 2012, new regulations have been introduced impacting the Oil and Gas sector in the UK. Maplecroft's in-depth Country Risk Report on the United Kingdom offers a comprehensive analysis of the challenges and opportunities this presents, providing detailed analysis of the governance framework, the regulatory and business environment, in addition to social and environmental risks.
The current coalition government has witnessed a steady decline in support since its inception in 2010, a trend which is likely to continue and which could challenge the legitimacy of its decision-making policies. The two ruling parties have so far failed to agree on outstanding energy sector reform. The latest cabinet reshuffle, in September 2012, placed conservative politician John Hayes as Energy Minister, providing Chancellor of the Exchequer George Osborne with an ally to pursue his plans to establish the UK as a "gas hub". The current Energy and Climate sector Secretary, Liberal Democrat Edward Davey - a keen promoter of renewable energy - is likely to provide a balance on Hayes' and Osborne's pro-fossil fuel stance.
Nevertheless, the government has reaffirmed its overall support for further development of the UK continental shelf, after it came under pressure to stimulate economic growth and breathe new life into the oil and gas industry. The record number of applications for the 27th offshore oil and gas licensing round (the recipients were announced on 26 October 2012) is expected to further boost offshore oil and gas exploration activity.
The regulatory framework covering the oil and gas industry is well established and poses low risks to businesses planning to invest in offshore activity. Several changes announced in the 2012 budget are expected to reduce uncertainty and increase competitiveness, including tax reliefs on decommissioning of offshore operations and an increase of field allowances in some regions. The latest licensing round was preceded in September 2012 by a new tax break for exploration and production on “brown field” oilfields, as an attempt to encourage investors to maximise output, which has witnessed a steady drop since 2008. Changes to the taxation regime have been welcomed by the industry and indicate a renewed push by the government to encourage investment.
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