Tory/Lib Dem fiscal regime is ‘damaging’ North Sea oil and gas sector


By Martin Kelly

A report published today by Oil and Gas UK claims that the UK Economy has been adversely affected by the fiscal policies being pursued by the UK coalition and that investment in the sector has been hit.
The Oil and Gas UK report says long-term prospects are being “frustrated by the structure and instability of the current fiscal regime” and that there are currently 24 billion barrels of oil left to be extracted.

The report claims that as a result of decisions taken by Chancellor George Osborne, tax receipts will be £2.3 billion less than expected from the oil and gas sector.

The report highlights a 50% drop in the number of exploration wells in 2011 when compared to the previous year and claims that the UK economic performance would have been 0.2 per cent higher had the chancellor not hiked up taxes paid by the sector.

It calls on the UK Government to guarantee what it calls decommissioning tax relief which the authors say would free up capital and extend the life of some fields, leading to an extra 1.7 billion barrels of oil or more. 

The report also claims another 1.3 billion barrels could be recovered but that £20 billion of required investment is currently locked due to the coalition’s tax regime.

The authors claim that these measures will reduce what they describe as “fiscal uncertainty” and that changes are required if the UK is to remain globally competitive this decade and beyond.

According to the report in 2011 the industry:

•Produced 1.8 million barrels, (18 per cent less than in 2010);

•Invested £8.5 billion of capital, similar to that experienced in the late 90’s (£6 billion in 2010);

•Spent £7.0 billion on operating costs (2 per cent higher than 2010);

•Drilled 121 development wells (130 wells in 2010);

•Spent £1.4 billion drilling 15 exploration and 28 appraisal wells (50 per cent fall in exploration and 20 per cent fall in appraisal compared with 2010);

•Discovered a further 200-300 million barrels;

•Initiated the development of 16 new fields and major field redevelopments (9 in 2010) which together with on-going brownfield investment will deliver 1.5 billion barrels over time;

•Expects to pay more than £11.1 billion in production taxes in the 2011-12 fiscal year (£9.3 billion
in 2010/11 );

•Supported employment of 440,000 people across the UK (approx. 45 per cent of these are in Scotland).

SNP MSP Maureen Watt has welcomed the reports findings that reveals investment in North Sea Oil and Gas continues – but said it also showed the UK Government must change its damaging fiscal regime for longer term benefits.

Ms Watt, SNP MSP for Aberdeen South and North Kincardine, is attending the launch of the report and said:

“This report clearly shows the current fiscal regime is damaging growth in the long term.

“There is some good news, in the sense that investment is continuing in North Sea oil and gas, with capital spending expected to reach £11.5billion this year.

“But it shows it is time for the Chancellor to realise his government’s raid on North Sea oil and gas is unacceptable.

“Scotland needs the full powers to allow us to tailor the North Sea tax and regulatory framework that will ensure extraction levels are maximised and the industry supported.

“Devolving responsibility for the North Sea fiscal regime would also allow the Scottish Government to invest a share of the returns from oil and gas production into an oil fund, which will continue to provide for future generations – instead of being squandered, as successive UK governments have done with Scotland’s North Sea dividend.

“George Osborne is currently delivering an unstable fiscal regime, which will only accelerate decline. His budget must deliver stability and open up investment in the industry.”