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UK oil firms warn Osborne: Without big tax cuts we are doomed
Chancellor admits more action needed to boost industry in wake of oil price collapse
The Chancellor is preparing concessions for North Sea oil Photo: Philip Toscano/PA
By Roland Gribben
8:30PM GMT 11 Jan 2015
344 Comments
North Sea oil and gas companies are to be offered tax concessions by the Chancellor in an effort to avoid production and investment cutbacks and an exodus of explorers.
George Osborne has drawn up a set of tax reform plans, following warnings that the industry’s future of the industry is at risk without substantial tax cuts.
But the industry fears he will not go far enough. Oil & Gas UK, the industry body, is urging a tax cut of as much as 30pc and an overhaul of what it says is a complex, unfriendly and outdated tax structure.
Mr Osborne asked Treasury officials to work on a new, more wide-ranging package than the 2pc tax cuts he promised in the Autumn Statement last month.
The basic tax levy is currently 60pc but can run to 80pc for established oil fields. He plans to open talks with industry leaders this week on new options for the pre-election March Budget.
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Mr Osborne acknowledged on Sunday that “more action” was needed. He said he could not pre-empt the Budget, but hinted strongly there could be a “further reductions in the burden of tax on investment in the North Sea”.
Ed Davey, the Energy Secretary, is due in Aberdeen on Thursday for talks about investment, the jobs outlook and the help being provided by the new Government- backed Oil and Gas Authority.
Industry leaders have presented the Chancellor with a bleak picture of the North Sea outlook after the big falls in the price of crude since the summer, and particularly the impact on the Scottish economy.
Mike Tholen, the economics director at Oil and Gas UK, dramatically summed up the situation. “If we don’t get an immediate 10pc cut, then that will be the death knell for the industry,” he said. The industry sees the 10pc cut as a “down payment” to be followed by a further 20pc reduction to provide an investment incentive.
The speed and scale of the collapse in oil prices, down almost 60pc to below $50 a barrel over the past five months, has forced North Sea operators in a high-cost oil basin to take emergency action.
A modest recovery in exploration is almost at a standstill, some projects have been mothballed and cost-cutting programmes accelerated. Oil contract workers’ pay has been slashed by 15pc and redundancy programmes are under review.
The industry’s “rescue” programme is simple, but costly. Allowances, supplementary taxes and other additions have made North Sea taxation one of the most complex in the business.
Companies operating fields discovered before 1992 can end up with handing over 80pc of their profits to the Chancellor; post-1992 discoveries carry a 60pc profits hit.
Oil & Gas UK wants the Chancellor to agree a single tax rate, with corporation tax pitched at 30pc. But one senior company executive said he feared the election could slow any reform measures.
North Sea production has fallen sharply since reaching its peak 30 years ago when Britain was one of the world’s top four oil and gas nations. Combined oil and gas output has slumped from 4.5m barrels a day to around 1.5m at present.
The government has been attempting to revive interest to increase the recovery rate, but inexperienced newcomers have struggled with high costs and small discoveries. Shell, BP and the other major operators are still involved, although on a much smaller scale. The biggest producer now is a Chinese state group operating under the Nexen name.
Chancellor admits more action needed to boost industry in wake of oil price collapse
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The Chancellor is preparing concessions for North Sea oil Photo: Philip Toscano/PA By Roland Gribben
8:30PM GMT 11 Jan 2015
344 Comments North Sea oil and gas companies are to be offered tax concessions by the Chancellor in an effort to avoid production and investment cutbacks and an exodus of explorers.
George Osborne has drawn up a set of tax reform plans, following warnings that the industry’s future of the industry is at risk without substantial tax cuts.
But the industry fears he will not go far enough. Oil & Gas UK, the industry body, is urging a tax cut of as much as 30pc and an overhaul of what it says is a complex, unfriendly and outdated tax structure.
Mr Osborne asked Treasury officials to work on a new, more wide-ranging package than the 2pc tax cuts he promised in the Autumn Statement last month.
The basic tax levy is currently 60pc but can run to 80pc for established oil fields. He plans to open talks with industry leaders this week on new options for the pre-election March Budget.
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10 Jan 2015
Mr Osborne acknowledged on Sunday that “more action” was needed. He said he could not pre-empt the Budget, but hinted strongly there could be a “further reductions in the burden of tax on investment in the North Sea”.
Ed Davey, the Energy Secretary, is due in Aberdeen on Thursday for talks about investment, the jobs outlook and the help being provided by the new Government- backed Oil and Gas Authority.
Industry leaders have presented the Chancellor with a bleak picture of the North Sea outlook after the big falls in the price of crude since the summer, and particularly the impact on the Scottish economy.
Mike Tholen, the economics director at Oil and Gas UK, dramatically summed up the situation. “If we don’t get an immediate 10pc cut, then that will be the death knell for the industry,” he said. The industry sees the 10pc cut as a “down payment” to be followed by a further 20pc reduction to provide an investment incentive.
The speed and scale of the collapse in oil prices, down almost 60pc to below $50 a barrel over the past five months, has forced North Sea operators in a high-cost oil basin to take emergency action.
A modest recovery in exploration is almost at a standstill, some projects have been mothballed and cost-cutting programmes accelerated. Oil contract workers’ pay has been slashed by 15pc and redundancy programmes are under review.
The industry’s “rescue” programme is simple, but costly. Allowances, supplementary taxes and other additions have made North Sea taxation one of the most complex in the business.
Companies operating fields discovered before 1992 can end up with handing over 80pc of their profits to the Chancellor; post-1992 discoveries carry a 60pc profits hit.
Oil & Gas UK wants the Chancellor to agree a single tax rate, with corporation tax pitched at 30pc. But one senior company executive said he feared the election could slow any reform measures.
North Sea production has fallen sharply since reaching its peak 30 years ago when Britain was one of the world’s top four oil and gas nations. Combined oil and gas output has slumped from 4.5m barrels a day to around 1.5m at present.
The government has been attempting to revive interest to increase the recovery rate, but inexperienced newcomers have struggled with high costs and small discoveries. Shell, BP and the other major operators are still involved, although on a much smaller scale. The biggest producer now is a Chinese state group operating under the Nexen name.
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