With continued signs that investment in the UKCS is falling rapidly, it is vital the scope of the Investment Allowance, announced in the March Budget, encourages all forms of productive investment if it is to provide the strongest engine for growth.
We are pleased to note the Government has taken steps to extend this allowance as they previously proposed and eagerly anticipate the required legislation by the end of the summer.
In addition, the announced two per cent cut in corporation tax over the next five years, will support companies throughout the sector’s supply chain and help its competitiveness.
There is increasing evidence big strides are being made to improve the efficiency and reduce the cost of operations.
Lifting costs are anticipated to fall as a result over the next 12 months. The pace of work behind the scenes must now be stepped up to continue the implementation of fiscal reform the industry urgently needs to support its own activities to improve efficiency.
We would like to acknowledge the continued commitment of the UK Government to provide a competitive tax regime as part of the shared objective to maximise economic recovery from the UK Continental Shelf (UKCS).
Whilst previous fiscal measures including the introduction of the Investment Allowance and reductions in the headline tax rates have been helpful, the agreed programme of fiscal reform must also continue to respond to the prevailing business environment.
The Treasury had already proposed in the March Budget to consult on further measures to support exploration, improve access to decommissioning tax relief and reform the fiscal treatment of infrastructure and with the Summer Budget now behind us, it is imperative the Treasury now commences these consultations to ensure the fiscal regime drives investment through the downturn.
The rate of exploration on the UKCS remains extremely low, with just 14 exploration wells drilled in 2014, and only seven so far this year – at a time when industry should be aiming to drill upwards of 30 wells a year to reinvigorate the basin.
That harsh fact underlines why we need effective regulatory, licensing and fiscal measures in place by Budget 2016 at the latest.
The industry is currently working closely with the Oil and Gas Authority (OGA) on technical measures to promote the discovery and development of prospects including the new seismic funded by HM Treasury, but this work alone will not allow us to turn the corner.
Deirdre Michie is chief executive of Oil & Gas UK
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