As North Sea oil and gas trade association published its Activity Survey for 2016, industry veteran Sir Ian Wood called on Chancellor George Osborne to take “drastic measures” to maximise recovery from the North Sea.
While the report reveals that while industry’s drive to improve efficiency, reduce operating costs and increase production has had marked success, these efforts have not been matched with decisive action from the UK government in creating a competitive tax regime to encourage exploration and development.
Commenting on the report’s launch, Oil and Gas UK Chief Executive Deirdre Michie called for a coherent approach between industry and the UK government in implementing tax rates which will stimulate the industry and attract investment.
Sir Ian Wood echoed the industry’s call stating that it was time for “drastic measures” from the Chancellor to address the challenges facing the North Sea.
He said: “The Chancellor has said a number of times in the past that he will have a road map towards adjusting the tax regime for maturity, so we have got that roadmap which needs to be… we need to start going down that road.”
“We are not competitive in terms of attracting any investment. So I can hope the Chancellor and the Government will look at it from the point of view of this is pretty drastic and needs drastic measures.”
“If you just take corporation tax, the rest of UK plc pays 20% – but oil and gas companies pay 30% – which I don’t understand.
“Now on top of that there is supplementary tax which was introduced to take account of higher oil prices and excess profits So, I mean, a very strong and helpful message would be let’s just have the oil and gas companies paying the same corporation tax as the rest of the UK.”
“We need some kind of measures to encourage investment in some new development and that could be done by some kind of special fiscal tax uplift for money spent in the next three years. So, if you invest now, you actually get an additional tax benefit because your investment now will help keep teams together, will help maintain jobs and will help maintain some level of activity and exploration”
“We need a plan to encourage development and encourage exploration.”
“We have produced, I think, about 44 billion barrels. There is a view there could be another 20 billion barrels to come. The North Sea will recover. I am prepared to guarantee in the next four or five years, we won’t, perhaps, be back to where we were but we will be back to a pretty strong, active industry with a lot of prospects ahead of it.”
“It will take a fiscal regime that is determined to maximise recovery from the North Sea.”
The SNP has long called for the UK government to reconsider the tax burden on the oil and gas sector – in order to incentivise exploration and development of new prospects and sustain jobs. With continuing low oil prices across the globe, SNP members have maintained pressure on the Chancellor to make 2016 a year of action for the North Sea industry.
And with the UK Chancellor due to make his budget statement to parliament on 16 March, the SNP is calling for the UK government to announce new measures to support the sector in the coming weeks.
SNP MSP Mark McDonald – whose Holyrood constituency includes a number of oil and service companies – said:
“In early January the SNP backed Sir Ian Wood’s call for ‘sensible measures’ from the UK government to help the oil and gas sector recover – and we welcome his renewed appeal for action from the Tory Chancellor.
“We’re still waiting for George Osborne to step up and take decisive steps to assist an industry in need.
“Meanwhile the SNP government has taken positive action to support those affected by the downturn through the Energy Jobs Taskforce – including £12 million in funding to help oil workers retrain in other fields – and £379 million investment in the North East of Scotland.
“With the Chancellor’s Budget just three weeks away, it is imperative that we see positive proposals coming forward to reduce the North Sea tax burden – to stimulate exploration and development in the industry, encourage investment and protect jobs.
“Ian Wood is right to highlight the positives in terms of production levels, the remaining potential for the North Sea basin, and the prospects for recovery – but this all depends on the Treasury taking overdue and necessary action.”
A Scottish government spokesman added: “The North Sea still holds significant potential – but this report highlights that further action is needed to encourage investment.
“Maximising economic recovery from our oil and gas resources will require the appropriate business conditions for investment in exploration, appraisal and development.
“The Scottish government will continue to do all that we can to support the sector. It is clear, however, that the UK government must take urgent action to substantially reduce the headline rate of tax at the March Budget and incentivise exploration. The fiscal regime must not be a barrier to investment and activity in the North Sea.”