Warning that the sector is “fighting hard for its survival” amid rock-bottom prices, the North Sea oil industry has urged the chancellor to hand it a rescue package of tax breaks in next week’s budget.
Unless conditions for the industry improved, about 14bn barrels of an estimated 20bn barrels of oil lying beneath the UK continental shelf in the North Sea would not be extracted, said the lobby group Oil & Gas UK.
Hundreds of jobs and billions of pounds of tax revenues and the UK’s energy security” would be put at risk as this would result in a decline in the production, said economics director Mike Tholen.
A large cut in the rate of tax on their production, which can be up to 67.5% on profit for older fields is among the measures that the North Sea explorers want to see.
While petroleum revenue tax of 35% applied to older fields should be scrapped altogether, the standard tax rate on oil profits of 50% should be cut by 20 percentage points, said Oil & Gas UK.
“The incentivising effect on investment and production in the long term should render it of minimal cost to government,” said Tholen. He added that in order to facilitate tax breaks and so that they could be passed on if the field was sold, the regime governing fields being decommissioned should be changed.
A decline in investment that is set to see money spent on new projects slump from an average of £8bn annually over the past five years to less than £1bn this year should be addressed by George Osborne, wants the Oil & Gas UK.
Any discoveries made over the next five years being freed from special taxes could help achieve this, Tholen said. A government-backed loan guarantee scheme and new allowances on existing fields were also called for by him.
“To bridge the gap between the 6.3bn barrels of oil and gas on the UK continental shelf in which investment is already approved and the 20bn that we estimate are out there, we must fight fiercely to attract global capital,” he said.
“That requires us to be attractive in cost, technology and fiscal terms, and this year’s budget presents the perfect opportunity for the government to signal to investors its long-term ambition for the sector,” he added.
In a region where oil is relatively costly to extract, the Oil & Gas UK pointed to efforts the North Sea industry had made to save money. Operating costs were reduced by 40 percent over the past two years by the offshore firms, the group said.
(Source:www.theguardian.com)
Unless conditions for the industry improved, about 14bn barrels of an estimated 20bn barrels of oil lying beneath the UK continental shelf in the North Sea would not be extracted, said the lobby group Oil & Gas UK.
Hundreds of jobs and billions of pounds of tax revenues and the UK’s energy security” would be put at risk as this would result in a decline in the production, said economics director Mike Tholen.
A large cut in the rate of tax on their production, which can be up to 67.5% on profit for older fields is among the measures that the North Sea explorers want to see.
While petroleum revenue tax of 35% applied to older fields should be scrapped altogether, the standard tax rate on oil profits of 50% should be cut by 20 percentage points, said Oil & Gas UK.
“The incentivising effect on investment and production in the long term should render it of minimal cost to government,” said Tholen. He added that in order to facilitate tax breaks and so that they could be passed on if the field was sold, the regime governing fields being decommissioned should be changed.
A decline in investment that is set to see money spent on new projects slump from an average of £8bn annually over the past five years to less than £1bn this year should be addressed by George Osborne, wants the Oil & Gas UK.
Any discoveries made over the next five years being freed from special taxes could help achieve this, Tholen said. A government-backed loan guarantee scheme and new allowances on existing fields were also called for by him.
“To bridge the gap between the 6.3bn barrels of oil and gas on the UK continental shelf in which investment is already approved and the 20bn that we estimate are out there, we must fight fiercely to attract global capital,” he said.
“That requires us to be attractive in cost, technology and fiscal terms, and this year’s budget presents the perfect opportunity for the government to signal to investors its long-term ambition for the sector,” he added.
In a region where oil is relatively costly to extract, the Oil & Gas UK pointed to efforts the North Sea industry had made to save money. Operating costs were reduced by 40 percent over the past two years by the offshore firms, the group said.
(Source:www.theguardian.com)