SO the Chancellor is giving away money to Big Oil to stimulate one last North Sea boomlet? Not quite.

As with all Budgets, what the Chancellor says and the actual outcomes are never quite the same thing but reports of the death of North Sea appear to have been exaggerated, at least for a few more years yet.

“There is at the moment,” the Chancellor told the nation, “less incentive to explore and extract oil from the North Sea.

“So I am bringing forward incentives to encourage smaller fields to be brought into production which could lead to an extra two billion barrels of oil and gas that would otherwise remain under the North Sea.”

The Treasury is signalling a wholesale shake up of the current regime of Petroleum Revenue Tax including a part-repeal of the labyrinthine legislation and the ditching of the dizzying number of reliefs, allowances, chargeable gains and methodologies.

The outcome is what North Sea tax expert Julian Small of accountants Deloitte said is “quite generous” allowances to reduce PRT in fields where the oil is “heavy” or difficult to lift and where operations are costly and done at high pressure.

These technically difficult fields tend to be operated by some of the world's largest oil companies, including the many North American firms in the North Sea.

Further allowances — less generous, says Small — are being made to smaller fields. These are typically fields abandoned by Big Oil after the end of the North Sea boom as not commercially viable and which are now being operated by the so-called scavenger companies who have picked up the assets to see if they can make them profitable.

“It proves the Treasury is listening and the oil and gas industry will welcome the moves,” said Small. “But there is a feeling the Treasury could have gone further.”

The new fiscal regime is by no means a Treasury giveaway.

The Treasury Red Book where the fine print of the Chancellor's housekeeping is laid bare shows the new incentives will have little or no effect with the Exchequer around just £15 million worse off over the next three years.

To put that in context, the total tax giveaway in the current financial year from the Budget as a whole is calculated at £5.1 billion.

More importantly is the context of total North Sea tax revenues.

Though they hit a high of £12.9 billion over the last 12 months on the back of last year's record high oil prices, the North Sea tax take is expected to almost halve in 2009-10 to £6.9 billion — the worst fiscal harvest from oil and gas in five years.

The figures also reveal that the Treasury has been overestimating its expected revenues from the North Sea.

The 2008-9 take is fully £300 million shy of Darling's forecasts just five months ago at the Pre-Budget Report (PBR) while this year's tax take is now expected to be £1.8 billion lower than that which the Treasury economists had been pencilling in.

The Treasury admitted: “Oil prices averaged almost $100 a barrel in 2008, although the sharp fall in prices in the latter months of last year meant that the final corporation tax instalment payment on 2008 profits made in January was substantially smaller than previous instalment payments.”

It further conceded that this year's forecast tax take has been slashed because the weak oil price is expected to average $46.7 a barrel in 2009 — $13 a barrel lower than assumed at the time of the PBR.

Darling's gamble therefore is that his new incentives will reduce the evaporation of the Treasury's North Sea income.

Jim Hannon of North Sea consultant Hannon Westwood believes today's incentives will be “a real platform for renewed activity” for years to come and might even turn out tax positive to the Treasury in the long term.

“The development of these otherwise marginal fields means that not only will jobs be preserved, but overall tax revenues can increase from a potential upswing in investments,” he said

“Oil companies involved will benefit from the income, while the UK will benefit from developing more of its own natural resources and for longer.”

But will two billion extra barrels from the North Sea make so much difference? Two billion barrels is the equivalent to about a year and half's total global production of a BP or a Shell.

A less aggressive fiscal regime for the North Sea may produce a few more years of exploration and production off our shores.

But in the end it is only delaying the inevitable. Our children will see the end of platforms in the North Sea and it will be their problem as to how the shortfall will be made up.