3 December 2014
Britain’s North Sea oil industry wants Chancellor of the Exchequer George Osborne to help save it from the market’s crashing prices when he announces the UK government’s autumn spending statement tomorrow.
The industry has been lobbying hard over recent weeks since the price of oil started to fall – the wholesale price of benchmark Brent Crude has plunged by about 40% in the past month.
Worried oil bosses also highlighted that this price collapse – caused in part by a supply glut by Middle East producers using oil as a proxy weapon of economic warfare and a record US output aided by shale – comes on top of a 26% jump in North Sea industry operating costs over the past year.
“Expect to see news on how the government will look to shore up investment in the North Sea,” Sanjeev Bahl, director of oil and gas equity research at Numis Securities, said today.
And Malcolm Webb, Chief Executive, UK Oil and Gas, warned: “Without swift action, capital investment is set to halve by 2017. Urgent tax reform is now needed for the North Sea to remain globally competitive and attractive for investors.”
Britain has suffered the steepest drop in output of any major producer since supply peaked 15 years ago. Production has declined about two-thirds, with Oil & Gas UK persistently missing production forecasts.
Now, with UK oil revenues sinking, investment to unlock an estimated 24 billion barrels still trapped under the seabed is increasingly at risk.
Oil and Gas UK is urging Osborne to reverse an increase in profit charges imposed in 2011, introduce a uniform allowance for capital investment, bring in tax incentives for exploration, and eventually lower petroleum-revenue tax to zero.
Osborne pledged when he raised the charges on earnings in 2011, to cut them back again if oil prices fell to $75 a barrel. Then, few would have predicted such a dive with North Sea Brent crude sitting at around $115.
Yesterday, Brent traded below $69 a barrel.