Oil & Gas UK urges stimulation of offshore activity

Industry association Oil & Gas UK has made a further representation to the UK Treasury on the North Sea tax regime.

Offshore staff

LONDON – Industry association Oil & Gas UK has made a further representation to the UK Treasury on the North Sea tax regime.

It has repeated its request for urgent reform due to the industry’s escalating industry costs and the falling oil price.

In a letter to the Chancellor of the Exchequer, CEO Malcolm Webb said: “Profitability on the UKCS [UK continental shelf] is insufficient to maintain the uncompetitive high tax rates of 62-81% paid by production companies.”

Britain’s Office for National Statistics has reported that pre-tax returns for the UKCS have fallen to levels last seen in 2005, the association added, when the oil price was less than $50/bbl and UK petroleum tax rates were 22%.

Webb said: “Last year total UKCS expenditure exceeded post-tax revenues; this year it is heading in the same direction. This is not a sustainable situation. Without swift action, capital investment is set to halve by 2017. Urgent tax reform is now needed for the North Sea to remain globally competitive and attractive for investors.”

Oil & Gas UK has called for:

• Immediate removal of the increase in supplementary charge introduced in 2011 to reflect lower profitability across the UKCS

• A single, uniform capital investment allowance to embrace all capex, including exploration and infrastructure

• Tax incentives to make exploration more attractive, improving potential returns and encouraging new entrants

• Removal of timing restrictions for the Ring Fence Expenditure Supplement

• A reduction over time to zero of the rate of Petroleum Revenue Tax.

Webb said that pressures on the basin have become greater in recent weeks. “The industry is now taking urgent steps to address its significant cost challenge, promoting efficiencies through innovation and simplifying work practices and processes. But the Treasury too has a critical role to play in the implementation of the Wood Review’s recommendations as one of the three crucial parties (alongside industry and the new Oil and Gas Authority) with the remit to rebuild confidence inBritain’s offshore industry and maximize recovery of oil and gas from the UKCS.”


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