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By Karolin Schaps
LONDON, March 18 (Reuters) - Britain announced on Wednesdaya series of oil tax cuts and the creation of an investmentallowance, heeding calls for help from battered North Sea oiland gas companies juggling high costs and a price slump.
The changes are a shot in the arm for Britain's North Sea,where oil production has fallen to the lowest level since fieldsstarted pumping fossil fuels in the mid-1970s and freshinvestments have stalled dramatically.
Finance minister George Osborne said he would cut asupplementary tax charge on oil companies to 20 from 30 percent,introduce an allowance aimed at reinvigorating investments and,in a surprise move, reduce extra charges imposed on the NorthSea's oldest fields to 35 from 50 percent from 2016.
"It's clear to me that the fall in the oil price poses apressing danger to the future of our North Sea industry - unlesswe take bold and immediate action," Osborne told parliament inhis annual budget speech.
These measures are expected to save companies around 1.3billion pounds ($1.9 billion) in tax payments and will result inat least 120 million barrels of oil equivalent in additionalproduction over the coming five years, the government said.
Shares in BP and Shell, traditionalinvestors in Britain's North Sea, were trading 1.1 percent and1.7 percent higher at 1440 GMT, while smaller firms with higherexposure to the basin also rose.
BP and Shell said they welcomed Wednesday's tax cuts butstressed that tackling high costs was essential and furtherchanges were needed.
The oil industry, worth around 5 billion pounds a year tothe state, has been urging the government for months to help itstem record-high costs that have been compounded by a halving inoil prices since last summer.
"The chancellor finally let the cat out of the bag," AngelaSavin, tax partner at global legal practice Norton RoseFulbright, said. "The extent of the changes is likely to enablea great deal of support for the industry."
North Sea investments worth around 25 billion pounds arecurrently unsanctioned as companies have been waiting for thegovernment to intervene.
Osborne also unveiled 20 million pounds of governmentfunding for new seismic surveys in under-explored areas of theNorth Sea.
Although the tax changes provide needed support, energycompanies are reliant on a rise in oil prices to make thenecessary long-term investments to retrieve the North Sea'sremaining oil and gas.
Sustaining growth will require "a mixture of strengtheningoil prices and confidence that taxes are not going to rise onceagain", said Ian McLelland, analyst at Edison InvestmentResearch.($1 = 0.6820 pounds) (Additional reporting by Dmitry Zhdannikov; Editing by AndrewOsborn and Dale Hudson)
