The impact on the North Sea of tax incentives unveiled in the April Budget will be modest but very worthwhile, according to a leading energy economist.
Alex Kemp, professor of petroleum economics at Aberdeen University, said yesterday the moves to stimulate investment in the basin should work to some degree.
The new allowances target certain categories of undeveloped discovery – small and so-called ultra-heavy oil and ultra-high-pressure/high-temperature fields – to help stimulate investment in a low-oil-price environment.
According to Prof Kemp, the measures announced by Chancellor Alistair Darling could trigger the development of about 50 fields between now and 2035 on the basis of oil and gas prices of $60 a barrel and 50p per therm respectively.
This would produce an extra 360million barrels of oil equivalent (mboe) over the period, he said.
Prof Kemp added: “The oil and gas supply chain would benefit to the extent of an additional £4.3billion (at 2008 prices) in field investment and £3.75billion in increased operating expenditures.”
He said that even if oil prices were to slip back to $40 a barrel, and with gas at 30p a therm, 40 field developments could be triggered over the period, adding: “These could involve 440mboe of extra production, £3.5billion of extra field investment and £2.85billion of extra operating expenditures.”
Oil and gas at $80 and 70p, or above, would render the Treasury’s incentives unnecessary because most new developments would be viable at pre-Budget tax terms at these prices, said the professor, whose findings are outlined in a new research paper co-authored with energy research fellow Linda Stephen.
His conclusions add further weight to expert opinion over the chancellor’s North Sea measures.
Earlier this month, Charles Westwood – chairman of Glasgow-based oil and gas industry consultant Hannon Westwood – said the new tax allowances should help to keep the UK North Sea competitive in attracting investment.
Mr Westwood said the incentives increased the number of credible opportunities for the development of small and challenging fields, and described the changes as “an intelligent and measured response” to issues raised by the industry.
Hannon Westwood predicted the allowances could stimulate the development of up to 45 small discoveries at an oil price of $45 a barrel and up to 157 finds at $60 a barrel.
Oil prices rose yesterday as US data raised hopes of an economic turnaround and disruptions from Opec member Nigeria contributed to supply concerns. US crude settled up 34 cents at $71.37 a barrel in New York, while Brent crude in London gained 21 cents at $71.06.
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