National statistics

Statistics of government revenues from UK oil and gas production July 2021

Updated 21 July 2021

1. About this release

This publication contains statistics of government revenues from UK oil and gas production.

2. Key findings

• Total government revenues from UK Oil and Gas production were £248 million (m) in the tax year 2020 to 2021, a drop of 71 per cent on the previous year
• Offshore Corporation Tax payments, including ring-fence Corporation Tax (RFCT) and Supplementary Charge (SC), decreased by 61 per cent year-on-year in net terms (i.e. net of repayments) to £498m
• At the start of 2020 to 2021, dollar-denominated oil prices fell to their lowest levels since 2003-04, before recovering slowly in the second half of 2020 ^{[footnote 1]}. Despite this gradual recovery, the average dollar oil price in 2020 to 2021 was the lowest seen since 2004 to 2005. This fall in oil prices, and the relatively low price levels seen over the year, resulted in the fall in receipts

Chart 1 shows the amount of oil and gas tax revenues paid to the UK Exchequer in the last five financial years (2016 to 2017 to 2020 to 2021). For each year it gives the overall net revenue amount, as well as its constituent parts.

Key observations from Chart 1 are:

• Petroleum Revenue Tax (PRT) receipts have been negative throughout the period. Since its rate was set to zero in 2016, practically all PRT receipts effectively now equate to repayments and appear as negative receipts. PRT repayments hovered between £550 million and £650 million over 2016 to 2017 to 2017 to 2018, peaking close to £750 million in 2018 to 2019 before declining to £408 million in 2019 to 2020 and then to £250 million in 2020 to 2021
• Offshore Corporation Tax (sum of Ring Fence Corporation Tax and Supplementary Charge) payments increased over 2016 to 2017 to 2018 to 2019, peaking at £2.2 billion in 2018 to 2019, before declining over 2019 to 2020 and 2020 to 2021, reaching £0.7 billion in 2020 to 2021
• Net revenues (sum of Ring Fence Corporation Tax Supplementary Charge and Petroleum revenue Tax, net of repayments) were negative in 2016 to 2017 following the shock to the oil price at the end of 2014 and depressed price levels over 2015 and 2016. Net revenues rebounded robustly from -£0.4 billion in 2016 to 2017 to £1.2 billion in both 2017 to 2018 and 2018 to 2019, before falling back to £0.9 billion in 2019 to 2020 and to £0.2 billion in 2020 to 2021, reflecting the decline in energy prices over 2020 driven by the reduced demand due to the pandemic

Chart 1: Government oil and gas revenues from UK Continental Shelf (UKCS)

3. Publication information

• Theme: The economy
• Released July 2021
• Frequency: Annual
• Next release: Summer 2022
• Media contact: HMRC Press Office 03000 585 018
• Statistical Contact: W. Waller and A. Dabak; ct.statistics@hmrc.gov.uk
• Media Enquiries: HMRC Press Office 03000 585 018; hmrc.communications@hmrc.gov.uk

4. Key statistics

Corporation Tax Receipts

• Net Offshore Corporation tax receipts (payments minus repayments), composed of Ring Fence Corporation Tax (RFCT) and the Supplementary Charge (SC), decreased by 61 per cent from £1.3bn in 2019 to 2020 to £0.5bn in 2020 to 2021. This reflects a sharp fall in the instalment payments of Offshore Corporation Tax (54 per cent) and a small year on year increase in repayments (16 per cent)
• Losses can be carried back against historical profits to obtain a repayment of previous tax paid

Petroleum Revenue Tax Receipts

• PRT repayments were £0.2bn in 2020 to 2021, £0.2bn lower than in 2019 to 2020. Loss-making fields can carry their losses back to relieve profits and tax paid in previous years, subject to time limits and strict ordering
• With effect from 1 January 2016, the PRT rate was reduced to zero per cent and PRT receipts have since been zero

5. Historic revenues from UK Oil and Gas production

Government revenues from UK oil and gas production have decreased significantly over the last decade.

From 2016, the rate of PRT was permanently set to zero and SC was reduced to 10 per cent. This, together with the general maturing of the oil and gas fields in the UK Continental Shelf (UKCS), resulted in reducing Government revenues from oil and gas production.

Revenues from oil and gas production peaked in tax year 2008 to 2009 and have generally decreased since.

Chart 2 shows how net revenues have fluctuated since 1984 to 1985 until 2020 to 2021.

Key observations from Chart 2 are:

• Government revenues from UK oil and gas production have decreased significantly over the last decade, from £10.8 billion in 1984 to 1981 to £0.2 billion in 2020 to 2021
• the overall profile is characterised by two peaks, one at the start of the period in the Chart (i.e. mid-1980s) and one over the 2005 to 2006 to 2010 to 2011 period, with a U-shaped decline and recovery in the intervening years and a sharp decline followed by a more modest recovery since the second peak period
• total net revenues fell below zero (i.e. repayments exceeding payments) for the first time in 2015 to 2016 and again in 2016 to 2017. This was followed by a modest recovery with net revenues reaching £1.2 billion in both 2017 to 2018 and 2018 to 2019, before falling back again to £0.9 billion in 2019 to 2020 and £0.2 billion in 2020 to 2021

Chart 2: Historic UK government net revenues from oil and gas production in the UKCS

6. Oil price, production and expenditure

Oil price continues to influence the expenditure of oil.

Chart 3 shows illustrative line graphs for production, expenditure and the oil price over time (calendar years), indexed at year 2000 (to 100).

Key observations from Chart 3 are:

• Sterling-denominated oil prices peaked in 2012, followed by a decline over 2013 to 2016, a recovery over 2017 to 2018, and another decline since then. At the end of 2020, sterling-denominated oil prices were less than 50 per cent of the levels seen in 2012
• expenditure by the oil and gas operators in the North Sea appears to be tracking oil price closely since 2004, albeit with a small lag. At the end of 2020, expenditure was less than 50 per cent of the level seen in the peak year of 2014
• production profile seems to be a lot more stable compared to oil prices and expenditure, peaking in 1999 and steadily declining through to 2014. It remained broadly flat since then

Chart 3: UK oil and gas production, Sterling oil price and total expenditure by operators

Source : OGA, OBR

In response to a shock to the oil price over the 2014 to 2016 period, expenditure was cut back sharply, albeit with a small lag, over the following three years. The growth of US shale oil production together with the decision by the Organisation of the Petroleum Exporting Countries (OPEC) to maintain a high level of output played a key role in this decline in oil prices.

From 2017 expenditure has seen modest year on year increases until 2020, recovering to 2016 levels. However, in early 2020 producers responded to the oil price falls and drops in consumer demand by cutting their spending back sharply. In the short term, reduced expenditure by producers improve their profits all else being equal. This gives them the means to react to oil price shocks and dampen the downward pressure on profits.

7. Exchequer liability from decommissioning

In 2020 the Oil and Gas Authority (OGA) estimated that the total industry costs between 2020 to 2021 and 2064 to 2065 for decommissioning all UKCS oil and gas infrastructure are £51 billion in 2019 prices. In the same year, HMRC estimated the Exchequer cost of tax relief from this expenditure at £18.3bn, made up of £9.4bn from tax repayments (shown as a provision in HMRC’s Annual Report and Accounts) and a reduction in Offshore Corporation Tax of £8.9bn. Decommissioning expenditure reduces company profits and hence lowers the overall tax take. HMRC’s updated provision estimate will be published in HMRC’s 2020 to 2021 Annual Report and Accounts this autumn.

8. Definitions

How is Corporation Tax applied to oil and gas companies?

This is calculated in the same way as the standard corporation tax applicable to all companies but with the addition of a ‘ring fence’ and the availability of 100 per cent first year allowances for virtually all capital expenditure. The ring fence prevents taxable profits from oil and gas extraction in the UK and UK Continental Shelf (UKCS) being reduced by losses from other activities or excessive interest payments. The current rate of tax on ring fence profits is 30 per cent and is set separately from the rate of mainstream corporation tax.

What is Supplementary Charge?

This is an additional charge on a company’s ring fence profits (but with no deduction for finance costs). With effect from 1 January 2016 the rate is 10 per cent.

What is Petroleum Revenue Tax?

This is a field-based tax charged on profits arising from oil and gas production from individual oil and gas fields which were given development consent before 16 March 1993. With effect from 1 January 2016, the PRT rate was reduced to zero per cent (previously the rate was 50 per cent). PRT is a deductible expense in computing profits chargeable to ring fence corporation tax and supplementary charge.

1. In fact the US benchmark West Texas Intermediate (WTI) crude futures briefly traded and settled in negative territory during April 2020. ↩