Sir Ian calls for ‘imaginative thinking’ on North Sea taxes
ONE of Scotland’s leading businessmen and the country’s foremost North Sea oil expert has called for reform of the industry’s tax breaks as he warned Brent Crude’s current sub $50-a-barrel price is unsustainable.
Sir Ian Wood, the former chair of Wood Group who wrote a report advising the government and industry on maximising recovery from the North Sea, said companies are facing some of their toughest times due to the latest falls in the price of crude oil.
He said that even if prices stayed at their present level, more tax breaks would be required to ensure continued investment in the North Sea.
Sir Ian’s comments come after waves of job losses over the past year since the price of oil more than halved – and concerns that Brent Crude could slip to just $30 a barrel.
He suggested the Treasury should consider a staggered regime of capital allowances for the oil industry that rise and fall in line with fluctuating oil prices.
Sir Ian told the BBC: “The industry is right now facing as tough a time as it has ever faced. I think government and industry must get together and talk about the tax regime. There must be some clever thinking to incentivise investment.
“Otherwise we will not be in a position to take advantage of the upturn.”
Sir Ian said the current tax incentives are ineffective in encouraging investment as there is currently little profitability – and therefore taxable – activity going on.
He also called on the UK Government, the Oil & Gas Authority regulator and the industry to find more ‘imaginative ways to encourage people to invest’.
Sir Ian proposed an incentive regime that tracks the price of oil, with bigger capital allowances when the price is low and lower allowances, when the price is high.
It came after operator Maersk announced it is to stop the company’s Janice field in the North Sea two years early. Around 200 onshore and offshore jobs could be lost as a result of the move.
Oil and Gas UK, the industry body, estimates that, conservatively, there have been more than 5,500 job losses since the oil price began falling. The trade union, Unite, say at least 4,000 posts have gone.
In a separate interview, Sir Ian added: “People don’t understand that the biggest loser by far in the current situation is UK plc because fields will be decommissioned early, companies will leave the North Sea and we will not achieve maximum economic recovery.”