NORTH Sea focused Enquest does not expect to hand over any tax on the bumper profits it has been making before 2018.
The oil and gas firm has pushed back the date when it expects to start paying tax by three years from 2015 to reflect the benefit of reliefs introduced in recent years.
The company said it expects to get a second heavy oil allowance of £800 million in respect of the giant Kraken development west of Shetland after confirming another discovery there earlier this year.
Enquest announced it generated $235m (£150m) cash from operations in the six months to June, compared with $240m in the same period last year.
The company's comments highlight the value of the relief introduced by the previous Government in 2009 to encourage firms to invest in heavy oil fields.
A number of allowances have been introduced by the Coalition Government since 2011, when it sparked outrage by hiking the tax rate payable on North Sea profits.
Asked if the tax regime has now become too generous, Enquest said further concessions would be required to unlock the full potential of the North Sea.
Chief finance officer Jonathan Swinney said some potential developments remained uneconomic following the increase in the North Sea tax rate to 62% in 2011, from 50%. He said reliefs like the heavy oil field allowance were needed to persuade firms to make the huge investments required to develop such assets.
Mr Swinney said a focus on corporation tax payments could fail to recognise other contributions made to the Exchequer's coffers as a result of oil and gas firms' activity.
These include the income tax and national insurance payable on the wages of people working on projects.
"Even if we pay zero cash tax, for every dollar we invest the Government takes a dollar out," said Mr Swinney.
Chief executive Amjad Bseisu said Enquest is focused on the North Sea, where it has made 14 acquisitions. While Enquest has moved into Malaysia and North Africa, the bulk of its investment this year will be in the North Sea.
The company said it continues to look at acquiring assets in the UK and other regions where it can apply its expertise in maximising production from mature assets and developing new fields.
Enquest expects to restart production from the UK's earliest oil field in the first quarter of 2014. It is relaunching the former Argyll field as the Alma Galia development. The expected start of production has slipped from the fourth quarter following a decision to do additional work on the production vessel for the field. This will help extend the life of the vessel. Mr Bseisu said all the subsea work required is complete.
Enquest has submitted a Field Development Plan for the Kraken asset for Government approval. The plan covers the original Kraken field and the Kraken North find confirmed this year. Enquest said first half profits before accounting for tax that may become payable in future and for finance costs fell to $167m from $193m. The average price it got for oil to $108.7 per barrel from $111.58. Enquest booked $6m extra costs following problems with a turbine used on the Thistle field.
Revenues rose to $456m from $440m. The company produced 21,455 barrels oil equivalent per day in the first half from North Sea assets including the Don fields compared with 20,253 last time.
It said production in 2013 should be in the lower half of the range indicated in March, 22,000 Boepd to 27,000 Boepd. This reflects the delayed start at Alma/Galia, which Enquest expects will deliver a "substantial increase" in production in 2014.
Enquest is buying a 50% stake in the Avalon prospect in the North Sea. It will pay up to £12.5m of the costs of a planned well and a 50% share of other expenses. Japan's Sumitomo has 50%.
Shares in Enquest closed down 2.8p at 123.9p.
The company has a 60% interest in the Kraken development, which it estimates contains more than 100 million barrels oil and gas.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article