Centrica leaves oil field closed after tax hike

By Ed Monk for Thisismoney.co.uk
Updated: 08:46 EDT, 2 June 2011

British Gas owner Centrica has decided against reopening one of the UK's largest gas fields, insisting that increased tax now makes the field in Morecombe not viable.

Centrica: The energy giant is angry at the tax increase.

Centrica had threatened to not reopen the South Morecambe field following maintenance work, complaining that the increase in offshore drilling tax announced in the Budget would make it cheaper to import gas.

The tax is being raised from 20% to 32%. The change raised the marginal rate of tax paid on gas produced at South Morecambe to 81% from 75%.Cetrica said that the change would cost it an additional £300m.

At a wholesale price for gas of 58.9p per therm currently, analysts estimate Centrica would make a profit of just 7p after deducting the cost of production and tax.

Centrica shares were unmoved today.

Morecambe Bay can supply about 6% of total UK gas demand or about 12% of domestic demand. The smaller North Morecambe field is expected to return to production within the next few days as it will be taxed at a lower rate.

None of the 400 staff who work at Morecambe Bay are being laid off and Centrica said it would assess on a daily basis whether to keep South Morecambe shut.

Chancellor George Osborne increased oil and gas production taxes to help pay for a reduction in fuel duty for motorists but the move has sparked fury from the UK oil and gas industry.

Centrica's chairman Sir Roger Carr said at its recent AGM: 'It's probable that these changes will affect our plans to invest in the UK North Sea, which will have an impact on jobs and North Sea investment.'

John Cridland, the director-general of employers organisation the CBI, also said yesterday he had written to the Chancellor urging him to reconsider the move or else allow older, more costly fields to be exempt.