Sector movers: Tax break hopes drive energy stocks higher ahead of UK Budget

Danny Alexander, chief secretary to the Treasury, signalled that North Sea oil and gas producers are set to benefit from tax cuts in the UK Budget statement on Wednesday.

Tax cuts offer incentives to encourage spending and investment in the sector, which against a backdrop of lower oil prices, is desperately needed.

According to reports, the proposed tax relief for the North Sea is likely to be at the heart of a package from chancellor George Osborne that could also include a headline cut to the so-called ‘supplementary’ charge, an extra 30% levy on producers paid on top of a 30% corporation tax rate.

"It appears that plummeting oil and gas prices have led governments around the world to rethink their tax policy across the industry as what has been a stable and rich source tax revenue can no longer take the strain," said Tim Wach, global managing director from tax advisors Taxand.

Brent crude prices were down 2.3% at $53.44 a barrel in afternoon trade, trading at a six-week low, while West Texas Intermediate oil was 1.8% lower at $43.10, extending losses after hitting a six-year low on Monday.

Wach said the measures are hoped to prevent a "domino effect" of oilfields shutting down across the region amid forecasts that capital spending on new projects will fall by a third this year - good news for struggling energy services and equipment stocks, who were at the top of the pile in London on Tuesday.

Hunting in particular was a strong riser, gaining 8%. The company, which makes products used for well construction, completion and intervention, had said earlier this month that its North Sea activity was near a record low in 2014 "as fiscal and political uncertainty hindered customer investment in the region".

Services groups such as Petrofac and Wood Group were also putting in decent gains.

Meanwhile, North Sea-exposed producers such as Tullow Oil and Premier Oil were rising 5% and 17% respectively, followed by smaller gains from the likes of BG Group and Shell.

AIM-listed oil and gas explorer Bowleven was rising 8% after completing the farm-out of its Etinde permit in Cameroon for up to $250m in cash. It has already received an initial $165m in cash.

Top performing sectors so far today

Oil Equipment, Services & Distribution 17,523.32 +2.37%
Mining 13,834.07 +2.15%
Electricity 8,926.72 +2.03%
Oil & Gas Producers 6,795.35 +1.90%
Gas, Water & Multiutilities 5,729.38 +1.80%

Bottom performing sectors so far today
Food & Drug Retailers 3,285.45 -2.19%
Construction & Materials 4,507.39 -2.10%
Forestry & Paper 14,379.76 -1.84%
Technology Hardware & Equipment 1,386.39 -1.33%
Real Estate Investment & Services 2,951.29 -0.86%