Industry legend Sir Ian Wood has warned UK Chancellor George Osborne of ‘irreversible damage’ to the North Sea oil and gas industry if he fails to announce measures in his Budget tomorrow to boost investment in the sector.
He said: “Unless we get this right we will lose a huge amount to the UK economy and the UK will be the loser.
“I reckon if we don’t begin to recover the confidence in 2015 then I think that the 380,000 jobs could easily be down to 300,000 into 2016/17, so it’s a very important moment to try and turn the tide.
“Right now, an awful lot of North Sea assets are up for sale. That speaks for itself in terms of the lack of confidence in the region.”
“I don’t think we’re too late but I think if we don’t do something really significant in this Budget then I think we are in danger of being too late.”
Meanwhile, in his final pre-budget plea for investment tax-cuts in the North Sea, the head of the UK Oil and Gas association has said that the Chancellor is ‘well-informed of industry’s current situation and we trust he will do the right thing for this sector and for the country on Wednesday.”
Malcolm Webb added: “Last year, after taxation, this industry suffered a negative cash flow of £5.8 billion. The UK North Sea sector is paying the price for having become a high cost, high tax and poorly regulated region.
“We urgently need to improve our cost base, reduce the tax burden and improve the stewardship of the basin. Fortunately, we know what needs to be done on each of these matters in order to correct the situation.”
“A double-digit reduction in the Supplementary Corporation Tax charge, plus a single simplified Investment Allowance, is urgently needed in order to help re-establish the competitiveness of the UK oil and gas industry.
Both industry and government have accepted all of the recommendations for regulatory reform contained in the Wood Report. However, significant investment is also required alongside action on costs and regulation.
“A clear signal must be sent out that the UK tax regime has been restructured in order to attract and sustain much needed investment for the long term. International investors must be encouraged to persevere with the UK. The current complexity and high rates of taxation (60-80%) provide no such encouragement.”
Unsanctioned oil and gas projects currently competing for investment total £25 billion. If industry works on its cost base, and the Chancellor delivers a more competitive tax regime, some £4-5bn of these projects could be approved in the near term. Oil & Gas UK’s Activity Survey 2015 revealed that in 2018, half of UK Continental Shelf production will come from fields which did not exist two years ago.
Webb added; “This further underlines the urgent need to keep exploring to replenish reserves whilst at the same time making the most of existing fields.”