UPDATE 1-Britain trims oil tax to help firms cope with low prices

(Adds details, background, tax expert comment)

By Karolin Schaps

LONDON, Dec 3 (Reuters) - Britain will trim a supplementarytax on oil companies by 2 percentage points next year, thefinance minister announced, less than the cut sought by theindustry as it grapples with high costs and a steep decline inoil prices.

The government will reduce the supplementary charge, anadded tax on oil producers' profits, to 30 percent from 32percent from Jan. 1, George Osborne announced on Wednesday,while the oil and gas industry had hoped for more.

"There is record investment this year in the North Sea, butthe lower oil price clearly presents a challenge to this vitalindustry," Osborne said as he announced a half-yearly budgetupdate.

Britain's oil and gas output has been dwindling rapidlysince it peaked at the turn of the century, but Osborne vowed inhis last update to extract "every drop of oil we can".

Now on top of high project costs and taxes, oil producersface Brent prices below $70 per barrel after a 55 percentdecline in six months.

"There was very little support in today's Autumn statementfor a North Sea oil industry that could see profits half in thecoming year on the back of falling oil prices," said IanMcLelland, an analyst at Edison investment research.

Industry body Oil and Gas UK said it welcomed the cut as afirst step but asked for further reductions to ensure companiescan continue investing in field development.

The oil and gas industry is a big contributor to theeconomy, including employing about 450,000 people and payingaround 5 billion pounds ($7.85 billion) in upstream taxes.

To support the extraction of oil in difficult areas, thegovernment also introduced on Wednesday a cluster area allowancefor high-pressure, high-temperature projects that are typicallymore challenging to develop than others.

Chief Secretary to the Treasury Danny Alexander is set tooutline further details of the oil and gas fiscal review in aspeech on Thursday.

The government also confirmed that it intended to create aninvestment fund from tax revenues collected from shale gasproduction.

The money will be targeted at areas such as northern Englandwhere shale gas developments will take place.

Britain is betting on shale gas to help boost energyproduction as operations in the North Sea age. But it has metlocal opposition based on concerns over the environmental impactof the drilling and extraction process.(1 US dollar = 0.6366 British pound) (editing by Jane Baird)