Speaking at the annual Oil and Gas UK Conference in Aberdeen, the First Minister of Scotland Nicola Sturgeon has called on the UK Government to urgently consult on incentives to boost exploration in the North Sea.
Last year, North Sea exploration reached its lowest level in at least two decades, with only 14 explorations wells drilled, compared to 44 in 2008.
In December 2014, the UK Government committed to further work on options for supporting exploration through the tax system, but have yet to deliver any follow up action.
The First Minister suggested that financial incentives – such as a new exploration tax credit or an expansion of the investment allowance – will allow companies find new oil discoveries.
Speaking ahead of conference the Sturgeon said: “North Sea exploration needs urgent support. You only need to look to Norway to see the impact that effective stewardship and the right policies can have on exploration, where more than 40 exploration wells were drilled in 2014.
“The benefits from exploration not only boost future production, but will also be felt across the supply-chain and the wider economy. For example, just this week Statoil announced two new contracts for the Johan Sverdrup field, which are worth billions of pounds. The field is estimated to hold approximately two billion barrels of oil – in contrast, this is 40 times more than the 50 million barrels of commercial reserves discovered in the UK Continental Shelf in 2014.
“The establishment of the Oil and Gas Authority has been an important development, which will help address some of the challenges. However, it is essential that the tax system is also appropriate given the issues faced by industry.
“The Scottish Government believes it is important that we have stronger fiscal incentives to support exploration. This could include the implementation of a new exploration tax credit, or by expanding the scope of the investment allowance.
“The critical issue is that the UK Government needs to deliver on its commitment to consult on incentives to boost exploration in the North Sea, and this consultation must be launched urgently – so that firm proposals can be announced in the Autumn Statement.
“The UK Government should demonstrate that it has learnt from the mistakes of five years ago by making a commitment that all significant policy proposals should be subject to consultation with industry and the Oil and Gas Authority. Working in partnership with industry is far more effective than operating in isolation, and will ensure that we avoid situations like the Chancellor’s sudden tax hike in 2011, which damaged the view of the UK fiscal regime in boardrooms around the world.”