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Insight

The Chancellor Backs Shale Gas in Budget 2013

George Osborne announced in his Budget that shale gas was "part of the future" and that the Government "will make it happen". This is the lead which the industry has been looking for.As trailed back George Osborne announced in his Budget that shale gas was "part of the future" and that the Government "will make it happen". This is the lead which the industry has been looking for.

As trailed back in the 2012 Autumn Statement, the Government will consult over the course of the year on measures to promote investment in the exploration and production of shale gas.

The consultation will include proposals for a new shale gas field tax allowance (to reduce the effective tax rate on shale gas production) and the extension of the Ring Fence Expenditure Supplement from 6 to 10 years.

The "Ring Fence Expenditure Supplement" (RFES) is a scheme for companies conducting exploration for oil and gas that do not yet have any taxable income against which to set their costs and capital allowances. RFES allows these losses to be carried forward for (currently) 6 years and applies a percentage uprate to those losses each year in order (a) to maintain the time value of exploration, appraisal and development costs and (b) to incentivise that expenditure.

If, as suggested, shale gas profits are ring fenced within the ring fence applying to other oil and gas profits, that is likely to be welcome to those investing in shale gas projects with existing North Sea oil and gas businesses.

The Government aims to consult over this summer and to implement legislation as part of Finance Bill 2014.

The shale gas industry is controversial sector, particularly in relation to fracking processes. The Budget states that detailed planning advice will be issued and also that proposals will be discussed in the summer in order to ensure that local communities benefit from shale.

Time will tell whether the proposals will be the catalyst that has been needed to kick-start the UK shale industry, but there are reasons to be optimistic.

We await the consultation document with great interest.

The Chancellor's announcement can be found in Chapter 1 of the Budget Report.

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