Apart from a one-sentence political swipe at the SNP / Scottish Government over fluctuating value of revenues from fossil fuel taxes, Chancellor George Osborne made no reference to the North Sea oil and gas energy sector in his spending review.
However, city analysts commented that this, in effect, means the Treasury is ‘abandoning’ the North Sea as the sector sheds thousands of jobs amid the deepest oil slump for nearly 30 years.
Ian McLelland, analyst at Edison Investment Research, said: “The Treasury is abandoning the UK’s struggling oil and gas industry.
“Without short-term fiscal support the government is closing the door early on much of the UKs remaining offshore reserves”
“With the Chancellor’s autumn statement announcing OBR estimates that oil and gas revenues are dropping 94%, there is little here to provide broader support.
“Following the 2014 Wood Review, the recently formed Oil & Gas Authority (OGA) is trying to encourage activity in the North Sea, but Osborne’s statement offers no material support to combat the pain of sustained low oil prices or arrest the plummeting levels of investment we expect to see across the industry.
“Costs need to fall, investment encouraged and more cooperation is needed, but we fear that without short-term fiscal support the government is closing the door early on much of the UK’s remaining offshore reserves, possibly never to be opened again.
“It is a dangerous game and one that will likely result in a growing number of oil and gas companies falling by the way, either through M&A or simply running out of room to stay in business.”
Graeme Lewis, Group Commercial Director at Air Energi – an employment agency – said: “Osborne points to a 94% fall in North Sea revenue – possibly signalling the end of the country’s oil industry.
“However, this could create a significant short term opportunity in regards to decommissioning, where a skilled and experienced workforce will be required to decommission the region’s extensive offshore infrastructure and recently mothballed projects.”
In its response, the Oil and Gas UK onshore trade association hinted further tax-breaks may be required from the UK Treasury to ‘boost confidence and investment’ in the North Sea.
And Tom MacLennan, partner at FRP Advisory, the restructuring and advisory firm, commented:
“The absence of anything substantive from the Treasury to assist the North Sea oil and gas industry serves as a sharp reminder that both the industry itself and the wider economy is having to rapidly adjust to a seismic shift in the quality and quantity of spend in the economy.
“The UK oil and gas industry is at the mercy of record low global oil prices that even the Office of Budget Responsibility has written down as remaining low for the foreseeable future.
“The first to feel the squeeze from a further contraction underway will be manpower and fabrication businesses, together with the small scale service industries as both the numbers of oil workers and total discretionary spend are slashed.
“There is currently no end in sight for cheap oil.”
The shake-out in costs has only just begun and management across the oil and gas and services industry are making now some tough decisions to ensure operations remain lean to ensure they can benefit from any swift global recovery.
Tax receipts alone from the North Sea – let alone actual money made by the industry – have been slashed to £130 million in 2015-16, down from £2.2 billion in 2014-15 and receipts of just under £11 billion four years earlier, according to the OBR.
MacLennan added: The oil and gas and related services industries in both Scotland and north of England are braced for stern times ahead – despite the latest overall funding package for Scotland – as it looks much more to OPEC production, China’s growth and Texas shale gas production for its future.