LONDON – Offshore industry association Oil & Gas UK says Britain’s government must act swiftly to rebuild investor confidence following the unexpected tax change in the 2011 Budget.
The association’s updated Activity Survey reveals that 25 projects, accounting for more than 1 Bboe and £12 billion ($19.7 billion) of investment, are now unlikely to go ahead. The tax increase will also shorten the lifespan of at least 20 producing fields by up to five years, the survey claims.
Aberdeen-based analyst Professor Alex Kemp reported in a separate study that over the remaining life of the UK shelf, reserves of 2.25 Bbbl could be lost.
Oil & Gas UK CEO Malcolm Webb said: “Our report, which quantifies the investment and production made marginal by the tax increase, reinforces the absolute necessity of agreement on new and extended field allowances, a constructive resolution of decommissioning tax relief restrictions and associated tax uncertainty, and the need for a more predictable fiscal regime. In this way, we can begin to re-build investor confidence.”
The survey suggests companies active on the shelf will continue with most projects they have committed to. But in the three months following the tax amendment, estimated investment in probable projects over the next decade has dropped by 30% from £33 billion to £23 billion ($54.3-$37.8 billion).
The tax increase has also made older fields a less attractive investment prospect, Oil & Gas UK points out. Continued operation of these older fields, often located at infrastructure hubs, can be critical - removal of their facilities might result in oil and gas nearby being left in the ground.