Yesterday’s Summer Budget – the first wholly Conservative Budget in almost two decades - had no surprise announcements for the oil and gas sector, however the Chancellor highlighted that measures announced in March would be going ahead. This included a new “simple and generous” tax allowance for investment and a rate cut for both Petroleum Revenue Tax and the Supplementary Charge.
Prior to the last general election, George Osborne would have scoffed at the possibility of being able to deliver the first Conservative budget in two decades.
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.
As the balloon bursts in Brazil and the party is over a lot of companies will be hit.
As intense negotiations continue in Vienna with the world's superpowers (Britain, China, France, Germany, Russia and the US) Iran has still to conclude a deal that ensures absolute transparency on its nuclear plant activities that should prevent it acquiring nuclear weapons.
The onshore wind industry faces great uncertainty following the announcement by energy and climate change secretary Amber Rudd that its place in the so-called Renewables Obligation will end in 2016.
Last month, Oil & Gas UK held its Annual Conference – with the aim of bringing the industry together, to recognise the challenges that face us and to focus on the way ahead.
I wasn’t going to write about the North Sea in this month’s eye. Rather, I was contemplating having a go at offshore wind, in large part because of the manner in which the UK’s unquestionably leading offshore presence in terms of turbines planted out there in UK territorial waters has been achieved.
The record $18.7billion Deepwater Horizon settlement is, first and foremost, a victory for BP. The company’s shareholders clearly recognize this. After the settlement was announced Thursday, giddy investors sent the company’s shares up more than 5%, adding more than $5billion to its market value.
Back in March when George Osborne delivered his final pre-election Budget, the key question was whether voters would reward him for the up-turn in the UK economy. The answer, at least south of the Border, was quite clear as the Conservatives secured a surprising majority victory on 7 May. Elsewhere here in the North East of Scotland, people would be forgiven for wondering what might be in store for them following the cold that the oil and gas industry has caught over the past year. Last month, Treasury minister Damian Hinds pledged that the new UK Government would continue to support the oil and gas sector, and industry chiefs will be looking for the Conservatives to build on a number of tax breaks announced in the March Budget.
Despite the oil price being slightly more stable over the past three months, it is still significantly lower than the highs seen over the past few years. There is still a great deal of uncertainty as to the future price and the UK oil and gas sector is facing the challenge of re-basing costs and improving efficiencies to make the UKCS viable at a $60 oil price.
Cost cutting has become the new orthodoxy in the oil and gas industry since the price per barrel plummeted from $115 in June 2104 to $45 in January this year. Every conversation I have had in recent months about the industry, whether it is across a boardroom table or over a pint, pretty quickly came round to the same theme. The days of plenty are over. We must all tighten our belts. And continue tightening. Even the seagulls in Aberdeen knew that costs within the industry were too high and had to come down, maybe by as much as 40%. There are different guesstimates as to how long the price will stay at the current level. History suggests that a low oil price cycle typically lasts for 2-3 years. This month marks the first anniversary of the start of the downwards slide.
UK oil and gas is a vital part of our economy and one of our great industrial success stories over the past 50 years.
Collaboration, collaboration, collaboration. If we’ve heard it once, we’ve heard it a thousand times. It’s an expression of hope, as well as a necessity. So why is the industry struggling to get a grip on it?
Lancashire County Council has rejected two planning applications over the course of the last week for hydraulic fracturing (‘fracking’), on traffic, noise and visual impact grounds. One site was recommended for refusal on traffic grounds, but the other was recommended for approval and was turned down against Council Officers’ advice. This decision has generated the most interest of the two.
A committee of the U.S. House of Representatives last month approved selling some oil from the Strategic Petroleum Reserve to pay for speeding government approvals for new medicine. It’s like raiding your kids’ college fund to buy groceries. Selling an asset, in this case oil, to fund a stop-gap budgetary measure that ought to be paid for through traditional funding avenues is not just short-sighted, it’s foolhardy. Short-sighted spending initiatives aren’t a congressional novelty, of course, but there’s a bigger issue behind the House’s interest in raiding the SPR, one that lawmakers on the House Energy and Commerce Committee seem unwilling to address fully. The 21 Century Cures Act that the committee approved would overhaul the process for approving new drugs and medical devices by pumping an additional $13billion over 10 years into the National Institutes of Health and the Food and Drug Administration.
The majority of daily oil production in today’s market comes from mature or maturing oil fields. New discoveries of reserves are not matching the pace set by the growing global demand for energy. This emphasises the requirement for new technologies that can enhance recovery from both active fields and future discoveries.
Could you be taking yourself too seriously this year? Stress is a major occupational hazard whilst the oil industry is under such pressure. Summer is upon us. However temporarily, it is time to “take your life back”. Our relationship with holidays can be an uneasy one. Former BP CEO Tony Hayward’s many distinctions will never eclipse the picture of him out sailing in the UK as attempts were being made to plug Macondo. Sunglasses and a baseball cap protected him from the Sun, but not from the tabloid of the same name. President Obama heard about it, and didn’t like it. For many 2015 is a difficult year, but who would swap with Hayward’s 2010?
Earlier in the week Amber Rudd gave a parliamentary speech on the controversial curtailment of onshore wind subsidies, but at the same time gave some positive signals on future prospects for UK offshore wind.
Protecting intellectual property (IP) remains one of the most challenging areas for SMEs in the oil and gas sector.
Companies do not equal value. My nine year old daughter, Emma, comes home and tells me “Mike’s dad owns two companies, how many companies do you own?” Mike has clearly impressed her. Yet, particularly in the current climate, those of us who can tie our own shoes should be a little more circumspect.
The current challenges facing the oil and gas industry have led to numerous initiatives and proposals to both reduce cost and increase efficiency.
There may not appear to be an obvious link between the prospects for North Sea oil and gas and the recent successes of British Cycling. But the innovative thinking which delivered Olympic gold medals and Tour de France victories could also benefit the UK’s energy industry.
The announcement by Energy Secretary Amber Rudd to close the renewables obligation (RO) for onshore wind-power generation has undermined a central plank of UK energy policy. One of the key successes of the Labour and the late coalition government was to deploy large quantities of cheap and secure onshore wind-power generating capacity across the entire British isles.
The marginal recovery in the price of Brent crude in February was more or less wiped out again in March and now seems to be levelling out somewhere around the $60 mark. ‘After-shocks’ are likely to continue making predictions about what will happen next, more art than science. Some economists have suggested the market remains over-priced and that $35 or even $30 oil isn’t beyond the realms of possibility. Let’s hope they’re wrong.