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A Loophole Is Revitalizing Old Oil Fields Here

Some interesting news from the U.K. North Sea last week.

Suggesting that this mature petroleum regime may be headed for some significant changes. And possibly increased production.

The news came from mid-tier player Canadian Natural Resources. Who announced they have secured a new kind of tax break from the U.K. government.

Specifically, a "brownfield allowance" (also known simply as BFA).

The BFA program was started by the government here in 2012. In order to spur development of aging fields that are becoming more and more common.

Since the introduction of the BFA program, Canadian Natural has been busy revamping three of its North Sea oil projects. Drilling new infill and injection wells on old fields, in order to grow production.

The company then submitted these development expenses to the government under the BFA program. And has now been approved for a "property development allowance" that can be claimed against future taxes.

The reduced taxation is designed to encourage more development drilling like this. Along with the upgrade or new construction of production facilities needed to keep oil and gas flowing.

The scope of Canadian Natural's current BFA plans is modest. Consisting of two infill wells on the company's Tiffany field. Along with four new producing wells, four injectors and two well upgrades at its Ninian field.

But even that scale of drilling could have an important impact on production. And if the trend catches on across a wider number of brown fields projects, it could help lift overall U.K. output.

This is just one more measure from a proven petroleum district that continues to re-invent itself. The policy shift may be especially timely, given that some established players here are starting to pull out. Such as Wintershall, which recently sold its U.K. project portfolio to MOL for $375 million.

The shuffle may give savvy firms an opportunity to pick up good acreage. And use credits like BFAs to breathe new life into these fields.

Watch for new junior players emerging.

Here's to what brown can do for you,

By Dave Forest




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