As the 2015 budget is announced by Chancellor George Osborne, Energy’s Editor Jeremy Cresswell gives his initial reaction to the measures which will be put into place for the North Sea oil and gas industry
Looks like Treasury was listening, but not hard enough.
Obviously the single, basin-wide tax allowance was expected and is apparently very welcome. So too the seismic survey allowance.
Some pundits weren’t expecting anything to be done to PRT yet; but it has been cut from 50% to 35%, presumably as an interim measure ahead of eventual abolition.
Supplementary charge is back to where it was five years ago … 20%; but oil prices are lower than when Gordon Brown introduced it.
That was on 5 December 2005, moreover, he caught the industry on the back foot by doubling the SCT surcharge on UK North Sea profits to 20% against a backdrop of plummeting domestic oil and gas output. The average price of Brent for December 2005 was $56.75. Today, Brent is trading around $53 against a background of dramatically lower output and much higher costs
Osborne claims the overall package is worth around £1.3billion to the industry and that it will boost production. I question that claim. It is not enough to do a decent job even allowing for the basin-wide allowance.
Mining the detail a little, my initial reaction to the seismic survey allowance was positive; now I’m not so sure.
I’m also struggling with the Treasury’s assumption for its central forecast that the policy measures “will boost oil production by 14 per cent, capital expenditure by 23 per cent and operating expenditure by 6 per cent.” I can’t see the production gain, I can’t see that level of capital expenditure uplift in the current climate and possibly not even at around $70 per barrel, but I can see production costs rising.
As for the City, go check out your shares. I get the impression that the Square Mile is nonplussed. But do bear in mind that the City is currently out of love with oil producers large or small.
Later in the budget Osborne said Corporation Tax was being cut to 20%, but that does not include the North Sea oil & gas industry. What a pity; therefore the Government’s approach remains discriminatory.
I’m very disappointed that the National Energy Catapult is going to Birmingham. None of the technology catapults have been secured by Aberdeen.
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