Tax reform plea for UK oil and gas

The UK offshore oil and gas industry trade body has called for urgent tax changes in next week’s Budget.

Oil & Gas UK say the move would boost the industry’s competitiveness and investors’ confidence in the UK continental shelf (UKCS).

The call follows new forecasts which showed that in the current price and business environment, more than one billion barrels of oil and gas are no longer considered economically viable to extract.

Oil & Gas UK economics director Mike Tholen said: “In such a mature basin like the UKCS where special attention and expenditure must be directed at maintaining the integrity of oil and gas infrastructure, we know that strong and sustained investment does translate into higher production.

“The 10% increase in production in 2015, confirmed last month by the Oil and Gas Authority, is a direct result of significant annual capital expenditure in the five years to 2014.”

“Lost production puts at risk hundreds of thousands of skilled jobs, billions of pounds of tax revenues and the UK’s energy security.

“As a result, domestic oil and gas production is forecast to decline sharply beyond the end of this decade.”

The industry pays 50% tax on production profits – or 67.5 % for older fields.

Oil & Gas UK is calling for a permanent cut of 20 percentage points and the removal of petroleum revenue tax.

Mr Tholen said these rate changes, coupled with the existing first year capital allowances, are strongly aligned with HM Treasury’s ‘Driving Investment’ plan for fiscal reform.

The incentivising effect on investment and production in the long term should, he considered, render it of minimal cost to Government.

He added: “Exploration, which currently sits at an all-time low, should be encouraged by permanent removal of special taxes from discoveries made over the next five years.”

Rigs stacked in the Cromarty Firth with no work because of the low oil price.