The fall in oil prices to their lowest in five years could mean current proposals for new North Sea tax allowances do not go far enough, oil and gas industry body Oil & Gas UK has said.
The comments followed a new report from the Scottish Government calling for urgent reform of the North Sea tax regime.
The UK Government has already started a review of the UK’s fiscal regime, with initial proposals, including cutting the supplementary charge on producers from 32% to 30%, and the creation of a cluster area allowance, outlined in the December 2014 Autumn statement. But, this was initiated prior to oil prices falling to and below US$50 a barrel.
Before the price collapse, the North Sea was already seen as being at a turning point, with high costs, falling production and low exploration rates.
The Scottish government’s report makes a string of proposals which it says could help support investment, encourage exploration and ensure that the North Sea is a competitive investment location.
Its three key proposals are:
Scottish Energy Minister Fergus Minister Fergus Ewing says: “The oil and gas industry is a strong success story for Scotland and will continue to be. However, because of the mismanagement of oil and gas fiscal policy by the UK Government, challenges remain and we must tackle the on-going cost pressures and the fall in oil prices head on. Last year the UK Government announced a 2% reduction of the Supplementary Charge rate – this reduction doesn’t go far enough.”
The Scottish government now plans to consult industry on its proposals.
Malcolm Webb, Oil & Gas UK’s chief executive, said: “If the Treasury’s new Investment Allowance is to have any impact it must be implemented by Budget 2015 at the very latest. However, with the oil price now at around $50 per barrel, it is becoming increasingly apparent that this measure is not enough and a significant reduction in the headline rate is required.
"We would hope this [the Scottish government’s consultation] exercise will complement the crucial work already well underway between the UK Treasury and the industry to make urgent changes to the UKCS tax regime in order to both sustain and encourage further investment.”
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