UK smallcap oils see mixed outcome from budget

By Tricia Wright

LONDON, April 23 (Reuters) - Incentives for oil and gas companies announced by the UK government boosted shares in some small-cap exploration companies, but may prove little help for a sector battered by high costs and funding constraints.

Tax breaks announced as part of Wednesday's budget include an allowance of 75 million pounds ($109.2 million) to small fields of about 20 million barrels of oil equivalent (boe) or less, and 800 million pounds for projects developing ultra-heavy oil reserves or reservoirs with very high pressures (HP) and temperatures (HT).

"The Field Allowance is a reasonable step and will enhance the value of marginal fields. However, I don't think that the proposed incentives will wholly satisfy the industry, given it was looking for wider-ranging measures, such as tax relief on exploration costs," said Royal Bank of Scotland analyst Phil Corbett.

Evolution Securities identified midcap Venture Production (VPC.L: Quote, Profile, Research), the largest UK independent operating in the North Sea, as the company standing to gain most from the budget incentives outside of the heavy oil and ultra HP/HT specific stocks.

The broker said that most of Venture's 29 discoveries as of year-end 2008 would likely qualify for all or part of the small field allowance, comprising up to 15 projects, fetching it a benefit of up to $239 million.

Venture's shares ended 0.4 percent higher.

Nautical Petroleum (NPE.L: Quote, Profile, Research), which develops heavy oil assets both on the UK continental shelf and in Europe, believes the government's Field Allowance will enhance the value of the company's 35 percent share of the Kraken project by 56 million pounds, and also its 26.7 percent share of Mariner by 43 million pounds.

Its shares closed 18.3 percent higher on Thursday.