Economic Report 2013

5. Case Studies of New Investment: Cygnus and Montrose-Arbroath Fields

Introduction

GDF SUEZ E&P UK’s Cygnus Development

The special tax regime which applies to the UKCS has undergone many changes since its inception in the mid-1970s, not least in March 2011. It is clear that the regime will have to be refined further in the years to come to ensure that the overall objective, shared by government and the industry, of recovering as much oil and gas as is economically possible from the UKCS is achieved. Since the shock of 2011’s tax rises, much work has been done by both HM Treasury (HMT) and the industry to find ways of helping to stimulate investment in technically difficult and economically marginal fields; investment that would not otherwise happen. Two such projects which have benefited from newly introduced tax reliefs, called field allowances, are outlined below, the first being a greenfield development (Cygnus) and the second brownfield (Montrose-Arbroath). It should be emphasised that field allowances only ease the tax burden; they do not remove it. An explanation of how UKCS production is taxed and how these allowances are applied is given in Section 6.

GDF SUEZ E&P UK Ltd is becoming one of the leading, newoperators inoil andgas exploration and production on the UKCS and is focused on growth in three core areas: the central and southern North Sea and west of Shetland. Since entering the UK in 1997, the company has built a substantial portfolio of assets in these areas, comprising almost 50 licences, 18 as operator. With more than 300 staff and contractors based in London and Aberdeen, the operator recently underlined its commitment to the UKCS by taking a 15-year lease on a new building in Aberdeen which will be completed in 2014. GDF SUEZ E&P UK is operator of the Cygnus development, with partners Centrica and Bayerngas UK. Cygnus is one of the most significant undeveloped gas fields in the southern North Sea (SNS) and the sixth largest field in the UKCS by remaining gas reserves. The company is also operator of the Juliet gas field in the SNS, a subsea tie-back development with first gas due in late 2013, and has an exciting portfolio of discoveries and exploration projects in the central North Sea and west of Shetland.

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ECONOMIC REPORT 2013