North Sea industry stakeholders have called on UK Chancellor George Osborne (pictured) to introduce additional measures to support the ailing oil and gas sector.
The Chancellor is due to unveil his Summer Budget tomorrow (8 July). It will be his first as Chancellor of the the new majority Conservative government.
The North Sea oil and gas industry has been under increasing pressure after increasing costs, falling production and low production efficiency were compounded by the oil price collapse from a steady $100/bbl to $50/bbl earlier this year. The result has been staff cuts, project delays or cancellations and tendering grinding to a halt.
Last year, the Chancellor announced a tranche of tax cuts for the industry, including a single simple tax allowance, investment in new seismic surveys, and a cut in the petroleum revenue tax from 50-35%, a cut in the supplementary charge from 30-20%.
The industry this year also welcomed a new regulatory body, the Oil and Gas Authority, which created following the Wood Review, before the oil price collapse, to address some of the industry's issues, including complex infrastructure, multiple ownership, low production efficiency, record low exploration drilling rates, etc.
Aberdeen & Grampian Chamber of Commerce said its members broadly approved of the measures introduced by the Chancellor in the 2015 Budget, but said they needed extra support for exploration and drilling.
The Chamber released the results of its 22nd Oil & Gas survey last month, which found that the global fall in the oil price had negatively impacted 91% of the businesses surveyed.
Research & policy director at the Chamber James Bream said: “Government support is especially important in the short to medium term for the industry, as the fall in oil price has forced energy sector companies to lay off staff, cancel projects and reduce prices, which impacts the whole north-east [Scotland] region.
“Our research points to a ‘recession in confidence’ in the sector, with an increase in decommissioning activity for more than 80% of contractors and a 70% have seen a drop in the value of exploration activity.
“These trends point to a risk of premature decommissioning, a lack of future development projects and work against the Government’s stated objective of maximizing economic recovery.”
Martin Findlay, Head of Tax at KPMG in Aberdeen, said: “We would fully expect to see further extensions to the oil and gas reliefs announced in March which will no doubt be coupled with the re-announcing of those benefits. At current and projected oil tax revenue levels, it’s unlikely for there to be huge benefit to the Exchequer. However, it should go towards creating further positive impact on industry sentiment, particularly in terms of marginal field development, fiscal stability and its general direction of travel."
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