LONDON --Oil & Gas UK has welcomed an announcement by Britain’s HM Treasury’s of a formal consultation into the future of the UK offshore oil and gas tax regime.
The UK continental shelf (UKCS) remains one of the world’s most expensive basins to operate and invest in, notes the organization. Despite current record rates of investment, the association sees signs that spending will halve over the next four years, while at the same time exploration remains depressed.
In recent years UK offshore production has declined rapidly, particularly in some of the oldest fields in the North Sea which are taxed at rates of up to 81%.
Michael Tholen, Oil & Gas UK’s economics director said: “The current fiscal regime has become increasingly complicated and unpredictable with high tax rates combined with a multiplicity of allowances.
“While targeted allowances have successfully encouraged a wave of activity in recent years, temporarily halting the production decline, their impact is diminishing in an ever more expensive business climate. Investors are increasingly looking to invest elsewhere rather than in the UK.”
Oil & Gas UK believes up to 24 Bboe of oil and gas remains to be recovered, but action is needed to assist development.
CEOMalcolm Webb said: “The Wood Review calls for a tripartite approach to the UKCS between HM Treasury, the new regulator (the Oil and Gas Authority) and industry to maximize economic recovery (MER). The current fiscal regime is becoming a barrier to investment both in new fields and in the many mature opportunities. This will be the first instance of MER in action and we have high expectations for what the consultation will deliver.
“While our members will work closely with HM Treasury to respond in depth to the consultation this review must lead to early action. It cannot simply be a paper exercise. The tax regime must be simplified and the headline rates reduced to send a strong signal that the UKCS is open for business.”
The oil and gas industry was the largest industrial investor in the UK economy last year, the association pointed out, spending £14 billion ($23.9 billion) in 2013, and Britain’s supply chain has a turnover of over £35 billion ($59.9 billion). The sector supports around 450,000 jobs in the UK.
All of this is at risk if UK offshore activity declines and there is no upturn in exploration, the association claimed.