Investment in the UK’s embattled oil and gas industry is expected to fall by almost 90 per cent this year, raising urgent industry calls for the Government to reform its North Sea tax regime to safeguard the industry’s future, reports The Telegraph.
Oil firms have been forced to dramatically slash costs in order to survive 70 per cent cut in oil prices since mid-2014, but the severe drop in investment threatens thousands of North Sea jobs, said Oil and Gas UK (OGUK).
The trade group says that firms have forced down the cost of oil production from $29.30 a barrel in 2014 to just under $21 a barrel in 2015. But despite improving efficiency and cutting operating costs almost half of the UK’s oilfields will struggle to make a profit if oil prices remain at $30-a-barrel levels for the rest of the year.
The financial risk means many have axed or delayed investment decisions, and OGUK said that investment in new projects could fall as low as £1bn this year, compared with a typical average of £8bn a year.
OGUK boss Deidre Michie said: “This drop in activity is being felt right across the supply chain, which contracted by a quarter in the last year and is expected to fall further in the coming year as current projects near completion.
“With demand for goods and services falling, ongoing job losses are the personal cost to individuals and families across the UK.”
North Sea job losses could reach a total of 23,000, and Aberdeen is expected to take the brunt of the economic hit. Securing the future of the region has already climbed the political agenda this year with both the Scottish and Westminster governments pledging hundreds of millions of pounds in support.
But OGUK said a bold overhaul of the North Sea tax regime is needed to provide investors with long-term certainty.
The group is lobbying Government to slash the overall North Sea tax burden in half by scrapping key oil levies. North Sea firms pay a corporation tax rate of 30 per cent, compared with 20 per cent paid by other companies, and on top of this pay a 20 per cent supplementary tax. Older fields can pay an additional petroleum revenue tax of up to 17 per cent, making the top rate tax for mature projects 67 per cent.
Ms Michie said the proposals are about “levelling the playing field” in the long-term to attract rather than asking for a handout during tough times.
“As an industry we are confident that we can get through this – but we need some help, and that’s where the Government comes in,” she said
