Industry body Oil & Gas UK has welcomed HM Treasury’s plans to launch a formal consultation into the future of the UK offshore oil and gas tax regime.
The trade body says it believes the sector faces an uncertain future and that the tax review is therefore now urgently needed.
The UK Continental Shelf (UKCS) is seen as a mature offshore oil and gas province and is currently one of the world’s most expensive basins to operate and invest in. Despite current record investment, there are worrying signs that investment will halve over the next four years, whilst exploration remains at an all-time low, warns oil and gas UK.
Production has fallen rapidly in recent years, particularly in some of the oldest fields in the North Sea which are taxed at rates of up to 81%.>
Last week, an independent commission said a North Sea tax review was critical to ensure that the remaining hydrocarbons on the UK Continental Shelf (UKCS) are fully exploited. Read more: North Sea tax review critical
Earlier this year, Sir Ian Wood's Maximizing Recovery review, commissioned to look at the future health and prospects of the basin, in light of falling production and increasing costs. Read more: A North Sea watershed
In a breakfast briefing earlier this year, James Edens, VP and Managing Director at CNR International (UK), said UK North Sea production in 2013 was 1.43MM boe/d—the lowest it had been since 1977. Semisubmersible day rates have almost doubled in the last three years and jackup rates have risen 60% in the last three years, Mike Tholen, Oil & Gas UK’s economics director, told the same briefing.
Tholen said today: “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.
Malcolm Webb, Oil & Gas UK’s Chief Executive (pictured), 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 maximise 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.”
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