Cut taxes or face a North Sea oil crisis

As exploration falls to new low, firms warn...

The north Sea’s oil and gas industry is pleading with the Government to lower taxes as its crisis worsens.

The price of oil has tumbled 70pc since summer 2014 and the north Sea industry is facing catastrophe with thousands of jobs already lost and many more under threat.

Figures from the industry’s 2016 Activity Survey revealed nearly half of the Uk’s north Sea oil fields will be loss-making by the end of the year if prices stay low.

less than £1bn is expected to be invested in projects, down from the typical £8bn a year. Just 13 exploration and 13 appraisal wells were drilled in 2015.

industry body oil & Gas Uk is calling for the Government to change the tax structure that is crippling the industry’s growth.

Chief executive Deirdre Michie said: ‘We want Government to level the playing field and to help attract investment into the Uk.’

Companies across the Uk pay 20pc corporation tax which is set to reduce to 18pc. however, north Sea oil firms pay special taxes at a headline rate of 50pc which rises to 67.5pc for fields paying Petroleum Revenue Tax on production.

Michie admitted the industry previously was operating with inflated costs, but that since the oil price began to decline companies had become more efficient.

The report revealed costs have dropped by a third to around $20.95 a barrel during 2015 and experts predict costs will fall again by another 20pc this year – meaning they will have dropped by 40pc over two years. however, revenues fell by 30pc to £18.1bn.

The oil price has been knocked by record US supply from shale, as well as continued supply from the opec cartel. lifting of sanctions on iran has meant the world is also producing around 2m barrels of excess oil a day and storage facilities are filling up around the world. The oil price is below $35 a barrel.

oil companies, including FTSE giants BP and Royal Dutch Shell, have been forced to cut billions of pounds in costs, make thousands of redundancies and sell billions of pounds of assets.

The cuts have hit operations around the world but the north Sea indus- try has been particularly vulnerable as it is a ‘mature’ region, which is considered fully developed.

it is estimated the north Sea industry has lost 65,000 jobs – 5,000 in the offshore sector and 60,000 in supporting industries and services sectors. Many of its fields are already being decommissioned as they do not make commercial sense to operate.

in five years it is expected 100 oil fields will have ceased production. however, Michie said: ‘We have a huge task ahead but the prize is worth fighting for. The Uk Continental Shelf still holds up to 20bn barrels of oil (equivalent) which can continue to provide a secure supply of energy for the country, support hundreds of thousands of jobs, generate several billion pounds in corporate and payroll taxes from the supply chain and stimulate count- less technological innovations.’ She said the Government would be better off lowering the taxes to get a share of ‘something’ rather than a higher tax which could lead to a collapse of the industry and a tax that would be a return of ‘nothing on nothing.’

last month Prime Minister David Cameron announced an oil support group and pledged a funding package of £500m to help the sector.