The North Sea oil industry has urged the chancellor to hand it a rescue package of tax breaks in next week’s budget, warning that the sector is “fighting hard for its survival” amid rock-bottom prices.
The lobby group Oil & Gas UK said about 14bn barrels of an estimated 20bn barrels of oil lying beneath the UK continental shelf in the North Sea would not be extracted unless conditions for the industry improved.
Economics director Mike Tholen said this could result in a decline in production that “puts at risk hundreds of thousands of skilled jobs, billions of pounds of tax revenues and the UK’s energy security”.
Among the measures North Sea explorers want to see is a large cut in the rate of tax on their production, which can be up to 67.5% on profit for older fields. Oil & Gas UK said the standard tax rate on oil profits of 50% should be cut by 20 percentage points, while petroleum revenue tax of 35% applied to older fields should be scrapped altogether.
“The incentivising effect on investment and production in the long term should render it of minimal cost to government,” said Tholen. The regime governing fields being decommissioned should be changed so tax breaks could be passed on if the field was sold, he added.
Oil & Gas UK also wants George Osborne to address a decline in investment that is set to see money spent on new projects slump from an average of £8bn annually over the past five years to less than £1bn this year.
Tholen said this could be achieved by removing special taxes from any discoveries made over the next five years. He also called for new allowances on existing fields and a government-backed loan guarantee scheme.
“To bridge the gap between the 6.3bn barrels of oil and gas on the UK continental shelf in which investment is already approved and the 20bn that we estimate are out there, we must fight fiercely to attract global capital,” he said.
“That requires us to be attractive in cost, technology and fiscal terms, and this year’s budget presents the perfect opportunity for the government to signal to investors its long-term ambition for the sector.”
Oil & Gas UK pointed to efforts the North Sea industry had made to save money in a region where oil is relatively costly to extract. The group said offshore firms had reduced their operating costs by about 40% over the past two years.
[“Source-theguardian”]
