£110bn Oil Boost for UK Treasury as Osborne grants decommissioning tax relief

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  By Martin Kelly

The Oil and Gas sector is set to generate an additional £110 billion for the UK Treasury over the next five to seven years after Chancellor George Osborne bowed to pressure and confirmed tax relief would be made available for decommissioning.

Trisha O’Reilly of Oil and Gas UK said the industry had been pressurising Mr Osborne for two years in order to obtain firm guarantees on tax relief on future decommissioning costs, which was finally confirmed in yesterday’s budget.

Ms O’Reilly explained that this would now allow money, previously tied up due to the uncertainty caused by the Treasury, to be freed for re-investment.

The extra investment would allow companies to consider selling on more mature fields which would in turn ensure the oil recovery from those fields can be maximised and delay de-commissioning by up to seven years.

The extension would, said Ms O’Reilly, generate an extra 1.7 billion barrels of oil equivalent which would generate – at $100 a barrel – £110 billion for the UK economy.

Responding to accusations by the OBR that the SNP’s recent estimates on oil revenues was wrong, Ms O’Reilly said that her organisation had carried out extensive consultation with the industry which indicated that their own production figures suggested that a huge amount of investment was due to come into the sector over the next four to five years.

This, said Ms O’Reilly, indicated that production will rise from 2014 out to 2017.  The projections are in line with a recent report published by the Scottish government.

However, the positive outlook from the industry was contrasted with new figures published yesterday by the Office of Budget Responsibility.

The OBR, created by George Osborne after the 2010 UK general election, has revised its own pessimistic figures further down and is now claiming that the revenue generated between now and 2017/18 will be £1bn less than it originally forecast.

The OBR now believes oil and gas will generate £33bn up to and including financial year 2017/18 which is £8.5bn lower than the Scottish Government’s cautious estimate, published in a report earlier this month.

Despite industry optimism, the new OBR figures were seized on by Unionist politicians who claimed they were a “blow” to the SNP’s belief of a new oil boom.

Scottish Secretary Michael Moore said: “There is a gulf between those independent OBR figures and the hugely optimistic numbers published by the Scottish Government last week.

“This debate must be based on fact, not wishful thinking.”

Labour’s Shadow Energy Minister Tom Greatrex said: “The fact that oil and gas revenues are expected to fall by 40% this year confirms that although the industry remains an important part of the Scottish economy, it is a declining and volatile resource.”

However whilst OBR figures appeared out of step with those presented by many industry figures and other bodies, the analysis published by the Scottish government received backing from others.

Speaking earlier this month, Professor Alex Kemp explained that OBR forecasts, which he described as being “pessimistic on all fronts”, were based on futures contracts and were often wrong.

The respected economist also suggested that OBR forecasts were “quite, quite cautious” which was he said “contrary to the evidence from the industry.”