By DARA BUTTERFIELD
Oil & Gas UK has released its Economic Report 2014 with a call of cuts in taxes amid claims that the sector is finding it increasingly difficult to compete for investment internationally with unit operating costs up to 60% higher than in 2011.
The London-based trade association warned that it will require ‘bold and purposeful action’ in all parts of the industry, and between government and industry, to redress the balance on costs. It warns that radical fiscal and regulatory reform are urgently needed to maximize the recovery of offshore oil and gas.
Oil & Gas UK chief executive Malcolm Webb said: “Today this country depends on oil and gas for some 70% of our primary energy needs – and oil and gas from the North Sea supplies nearly 50% of that. Our industry has a crucial role to play in the future well-being of this country.
“However, to support a lasting and sustainable future, today we’re calling for greater collaboration – between governments, between government and industry and within industry itself to face and fight the challenges ahead.
“Far-sighted changes to the fiscal regime, are needed in the next 12 to 18 months to stimulate new investment in exploration and production. Alongside this, the industry must improve its efficiency and reduce its costs as a matter of utmost urgency.”
Oil & Gas UK’s economics director, Michael Tholen, added: “We need a lighter tax burden, a simpler and more predictable system of field allowances and fiscal support for exploration. The outcome of the Fiscal Review, expected to be announced in December this year, must be relevant, radical and robust.”
Production in the first half of 2014 has been good for the industry. After several years of double digit decline, DECC figures currently indicate a 1% increase compared with the same period in 2013.
Oil & Gas UK claims this is due to the benefits of strong investment in recent years (£14.4 billion last year and £13 billion in 2014) and the return of several fields back into production, including Elgin Franklin, Gryphon and the Penguins Cluster. They say that significant oil and gas resources still lie offshore, possibly up to 24 billion boe (barrels of oil equivalent).
Malcolm Webb added: “The magnitude of the task ahead means that over one trillion pounds of expenditure (in 2013 money) will be required if the recovery of above 20 billion boe is to be achieved.”