by a Newsnet reporter
Investment in the North sea oil and gas industry has been harmed by the UK government’s tax hike on the sector, a survey by the Aberdeen and Grampian Chamber of Commerce (AGCC) has revealed.
The survey, carried out by the Fraser of Allander Institute, asked companies operating in the oil and gas sector in the city to assess trends within the industry. The new report is the 15th in the series, which has come to rank as one of the most important business surveys of this vital energy sector.
Most damaging for the Coalition government is that the survey directly contradicts Prime Minister David Cameron’s assertion that the Westminster government’s tax raid on the oil and gas industry had not damaged the sector. More than half the respondents to the survey, which is sponsored by national law firm McGrigors, said the surprise tax had a direct affect on planned long term investments in the sector.
No less than half the operating companies participating in the survey reported that the tax increase had reduced their investment plans. Another fifth believed that the tax measure had reduced operational activity.
The report noted: “Notwithstanding the Prime Minister’s view this tax increase had not damaged the oil and gas industry, 21% of respondents to the current survey thought it had reduced the level of operational activity and 32% the investment plans. Amongst operators 50% thought it had reduced investment plans.”
Robert Collier, Chief Executive of Aberdeen & Grampian Chamber of Commerce, said: “When David Cameron visited Aberdeen in October he said the budget tax increase had not damaged the industry. Our survey has shown that 50% of oil and gas operators felt it had negatively affected investment plans. Whilst the tax grab may not have halted all future projects, what it has done is harm the potential of the North Sea and risks some fields being left undeveloped. It is ironic that reduced activity will reduce the amount of tax paid to the treasury.”
Bob Ruddiman, Head of Energy at McGrigors, said: “The prediction of seasoned industry observers of how the sudden Budget tax increase would dent confidence and undermine trust in the UK oil and gas industry has been borne out by this survey.
“There is no great comfort in being able to say to Westminster politicians that ‘we told you so’ and it is time to move on, but we have to hope they have taken on board the strong message from operators that without a stable and transparent tax regime, investment capital will be diverted to other oil and gas producing regions and the UKCS [UK Continental Shelf] will pay the price of Government meddling.”
The second key finding of the survey is that business confidence in companies operating in the UKCS is markedly lower than business confidence in comparable regions outside the UK. Only 25% of companies in the Aberdeen survey reported that they were confident about their future prospects, compared to 60% amongst those companies operating internationally.
The report mentions the UK government’s priority of reducing public expenditure as one of the major reasons for the lack of confidence displayed in the industry in the UK, noting that UK government economic policy raised uncertainties about future demand and investment.
The report also found that capacity in the UKCS is under-utilised in comparison with overseas markets, with figures of 50% for the UKCS compared with 80% internationally. The under-utilisation is in part due to the uncertainty generated by the UK’s economic policies and priorities.
The report stated: “Ongoing economic uncertainty both globally and in the UK continues to impact on business confidence and activity, the continuing euro zone sovereign debt crisis and slow down of the economic recovery together with ongoing policies to reduce government expenditure raises uncertainties as to future demand and investment decisions.”
SNP MSP Mark McDonald, who led a member’s debate on North Sea taxation, believes the survey shows alternatives are needed to boost confidence in the sector.
He said: “This survey reinforces the fact this disgraceful tax hike has had a negative impact on Scotland’s oil industry.
“It comes only a few weeks after David Cameron visited Aberdeen and said the increase had not damaged the industry.
“The oil and gas operators clearly disagree with the Prime Minister which shows how out of touch he is with what is happening and affecting the Scottish oil industry.
“It also strengthens the First Minister’s call to establish a procedure for a statutory consultation period of a year before applying changes to oil and gas taxation.
“This would restore confidence in the sector – something that is clearly desperately needed.
“Whilst firms like BP are investing and a report last week showed there was still £376 billion of value left in the North Sea this survey shows there could be much more.
“It is time for the UK Government to reverse the increase and instead help the industry regain confidence which will encourage growth.
“The SNP is working hard to attract investment in North Sea Oil but Westminster interference risks some fields being left underdeveloped. After 40 years of inept management by the UK Government, it is time Scotland was given a chance to control these natural resources.”
The 15th Aberdeen and Grampian Chamber of Commerce Oil and Gas Report can be read in full here: http://www.agcc.co.uk/policypolicy/?tab=oilandgassurvey