Maximum Economic Recovery being hampered by ‘wrong North Sea taxes’, warns oil guru Prof. Alex Kemp

Professor Alex Kemp
Professor Alex Kemp

EXCLUSIVE by Scottish Energy News

The Chancellor’s latest budget has done little to provide actual practical help to encourage greater exploration for new North Sea oil and gas fields.

That was the conclusion of a keynote presentation at the DELIVERING MER – The Issues  conference by Prof. Alex. Kemp, OBE, Professor of Petroleum Economics at Aberdeen University last week.

The stand-out announcements in last month’s budget for the North Sea was the reduction in the Supplementary Charge the zero-rating of the Petroleum Revenue Tax.

But, said Prof. Kemp, taxation is not the only issue in considering investment in North Sea exploration.

And he said – even at these reduced levels of tax – many oil companies would consider new exploration in the North Sea when crude oil prices are the in the $30-35-barrel range as ‘uneconomic’.

And he added that “even with crude oil priced at $50-60-barrel, many new fields would still be marginal” in that current fiscal regime. Getting new investment in the North Sea in the present climate is certainly problematical

“Many un-developed fields remain uneconomic and <these) tax rates create uncertainty among both the exploration and investment communities.”

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‘The North Sea fiscal regime is not fit for the future’, was the theme of the presentation by Derek Leith, Senior Partner, EY Aberdeen.

“A high cost-base and high tax-rates lead directly to losses in production efficiency – and a drop in investment in exploration” he told the ground-breaking conference, which was co-organised by the University of Aberdeen and Scottish Energy News.

“A question which must be asked, is this; ‘In a mature basin such as the UKCS, should there be a 10% Supplementary Charge when there is no real stimulus for exploration in the North Sea at the moment?

“Most North Sea operators are not even paying tax at present and we don’t have the right balance between encouraging exploration investment and a fair tax regime in a mature basin.

“What we do need, however, is a simple, transparent, low-tax regime to help DELIVER MER.”

Formally opening the ‘DELIVERING MER – The Issues’ conference, Prof Sir Ian Diamond, Principal of Aberdeen University, highlighted the importance of partnership and collaboration between industry and education in the North Sea and opportunity in the region’s City Deal to make Aberdeen an international centre innovation.

John Scrimgeour, executive director of the university’s Aberdeen Institute of EnergyJohn Scrimgeour, Director of the Institute of Energy at Aberdeen University,  (pictured, left) added: “There were excellent presentations from leaders in the Oil and Gas sector at this conference which brought out and started a very interesting – and totally topical – debate on some of the issues we are going to have in delivering MER.

“While we face very challenging times right now, this might prove to be an opportunity for the UKCS to get set up to deliver a long and prosperous late-life basin.”

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