Trade association Oil & Gas UK has called on the Chancellor to take urgent action to reduce and simplify North Sea oil and gas taxation, noting today (March 16) that the right action could result in additional investment in the North Sea.
Oil & Gas UK chief executive, Malcolm Webb, commented:
“A double-digit reduction in the Supplementary Corporation Tax charge, plus a single simplified Investment Allowance, is urgently needed in order to help re-establish the competitiveness of the UK oil and gas industry.
“The Chancellor is well-informed of industry’s current situation and I trust he will do the right thing for this sector and for the country on Wednesday.”
Malcolm Webb added:
“Last year, after taxation, this industry suffered a negative cash flow of £5.8 billion. The UK North Sea sector is paying the price for having become a high cost, high tax and poorly regulated region. We urgently need to improve our cost base, reduce the tax burden and improve the stewardship of the basin. Fortunately, we know what needs to be done on each of these matters in order to correct the situation.”
According to Oil & Gas UK, industry is now working flat out to improve its cost efficiency and a wide range of activity is underway throughout the sector. Both industry and Government have accepted all of the recommendations for regulatory reform contained in the Wood Report. However, significant investment is also required alongside action on costs and regulation, Oil & Gas UK added. A clear signal must be sent out that the UK tax regime has been restructured in order to attract and sustain much needed investment for the long term, Oil & Gas UK further explained and added that international investors must be encouraged to persevere with the UK. The current complexity and high (60 to 80 per cent) rates of taxation provide no such encouragement.
Unsanctioned projects currently competing for investment on the UK Continental Shelf (UKCS) total £25bn. If industry works on its cost base, and the Chancellor delivers a more competitive tax regime, some £4-5bn of these projects could be sanctioned in the near term, Oil & Gas UK said.
Oil & Gas UK’s Activity Survey 2015 revealed that in 2018, half of UK Continental Shelf production will come from fields which did not exist two years ago. This further underlines the urgent need to keep exploring to replenish reserves whilst at the same time making the most of existing fields, Oil & Gas UK concluded.