Oil & Gas UK approved the Chancellor’s confirmation that the Treasury will broaden the types of investment qualifying for the Investment Allowance and phased 2% cut in corporation tax for non-ring-fenced trade.
But Deirdre Michie, Oil & Gas UK Chief Executive, warned: “With continued signs that investment in the North Sea energy sector is falling rapidly, it is vital the scope of the Investment Allowance, announced in the March Budget, encourages all forms of productive investment if it is to provide the strongest engine for growth.
“We are pleased to note that the Government has today taken steps to extend this allowance as they previously proposed and eagerly anticipate the required legislation by the end of the summer.
“In addition, the announced 2% cut in corporation tax over the next five years, will support companies throughout the sector’s supply chain and help its competitiveness.”
But with crude oil hovering around the $50-60-barrel price range – half that from this time last year – the rate of new exploration in the North Sea (90% of which is in Scottish waters) remains extremely low.
With a projected future life span of just 25 years for North Sea oil, only 14 exploration wells were drilled in 2014, and only seven so far this year – at a time when industry should be aiming to drill upwards of 30 wells a year to reinvigorate the basin.
And Graeme Lewis, Group Commercial Director, Air Energi, commented: “The Government could, and should, have done more to support the industry at this difficult time.”
It’s disappointing to see that there have been no further oil and gas tax breaks announced in the latest Budget.
“Considering the challenges being faced by the industry in the North Sea, there is a real chance that this approach will risk more jobs in the sector.
Martin Findlay, partner and head of tax with KPMG in Aberdeen, said: “While there was no new oil and gas specific content in the Budget there is a clear indication from Treasury that it will continue to consult with industry and the Oil & Gas Authority on additional fiscal measures to support the goal of maximising economic recovery in the UKCS.
“The Government’s commitment to the industry remains positive but It is hard to predict at this stage how long it will take for new exploration to start in the UK sector, current market conditions being something that tax alone cannot deal with.
“The Chancellor cannot control global commodity pricing and many of the issues faced by the industry can only be addressed by the operators, service companies and the supply chain working in new ways that reflect today’s market conditions.
“From a wider perspective, the 2% cut in corporation tax effective in two stages from 2017 is a welcome and perhaps unexpected step. This will be of benefit to the UK’s full spectrum of industries and send a strong message to the markets that the UK is committed to being a competitive location for global businesses.”
Michie added: “These harsh fact underlines why we need effective regulatory, licensing and fiscal measures in place by Budget 2016 at the latest. “
Dr Jake Davies, Marketing Director, Permasense, commented: “While the industry welcomes continued support from the UK Government, operators in the North Sea will remain focused on generating maximum return from the information and resources at their disposal.
“Therefore, we will still see a demand for innovative, cost-effective solutions to safely enhance and maintain production operations for existing assets, without increasing operational risk or compromising safety.”
And Scott Lehman, Vice-President of Product Marketing & Product Management at Petrotechnics, said: “Support from the UK Government for the oil and gas industry is welcomed by Petrotechnics.
“Cost reduction is high on the agenda for the industry but it is important to get the dynamic between cost, risk, activity and safety correct.
“With an increased focus on understanding and managing operational risk, the industry can improve its operational effectiveness and ultimately unlock higher levels of asset productivity in this time of economic uncertainty.”