One of Scotland’s leading businessmen said last night that the North Sea oil and gas industry could be the saviour of the UK economy and haul the country out of its massive debt.
Sir Ian Wood said the UK Government needed to get together with the industry to draw up a plan to maximise output and boost the economy for years to come.
Without action he fears nearly £800billion worth of oil and gas will remain untouched under the sea – and the Treasury will be denied a massive income in tax receipts from its production.
Offshore industry leaders have already made repeated calls for tax incentives to encourage investment in the sector.
Sir Ian, chairman of Aberdeen-based global energy service business Wood Group, told an awards dinner held by industry body Oil & Gas UK that government policies needed to focus less on maximising income and more on getting oil and gas out of the ground.
His comments later received backing from other business leaders, one of whom accused the government of milking the UK oil and gas industry to near breaking point.
Sir Ian said: “North Sea oil and gas probably saved Dennis Healey’s mid-70s UK from the International Monetary Fund.
“It’s no exaggeration to say that our industry, with some joint leadership from government, could, over the next few years, rescue our economy once again, this time from the huge debt problems we now face following the worst global financial crisis of the last 50 years.
“Even now, UK’s oil and gas enhances our economy and balance of payments by some £30billion per annum.”
Sir Ian said maximising recovery from the North Sea was a vital objective for the UK.
Reserves still to be recovered could vary between 12billion and 25billion barrels of oil equivalent.
The 13billion difference could be worth £787billion – money that would be at risk if the UK seriously under-recovered its North Sea oil and gas reserves, said Sir Ian.
He said meetings should be taking place between senior representative of bodies including Oil & Gas UK, the Treasury and Pilot – the joint programme involving the government and the industry which aims to secure the long-term future of the British oil and gas business.
“The starting position must be to identify on a notional basis how that 25billion barrels recovery can be achieved – the required annual level of exploration, the resources necessary to achieve this, the essential new finds per annum of different sizes, the areas of vital new infrastructure and current vulnerable infrastructure, and the significant impediments to new developments and to maximising recovery from current fields.”
He added that incentives needed to be redesigned to encourage investment, and the decommissioning regime had to achieve the right balance between protecting the sea bed and encouraging recovery from mature fields.
New technologies and significant improvements in offshore efficiency and productivity were also needed, he said.
But Sir Ian admitted he was not overly optimistic about the future.
“We talk about maximising recovery and acknowledge the huge benefits to the UK and the industry long term, but talk is not action and I feel Pilot has lost some momentum.
“Government, at least cerebrally, understand the prize, but have great difficulty thinking past the next parliament, and the industry has just come through a difficult survival phase, which is not conducive to co-operative long-term thinking and planning.
“Right now, I believe we will be lucky to achieve 15billion barrels as an eventual outcome.”
Graeme Coutts, executive chairman of international oilfield service group Expro, said last night he was in agreement with Sir Ian’s comments on change being needed to help the oil and gas industry reach its potential.
He added: “For a long time, the Labour government has completely milked and ignored the health of the UK oil and gas business almost to the point of breaking.
“The oil and gas industry is under a punitive tax regime, higher than any other industry in the UK.
“It would be nice to see something of a long-term and stable government policy related to investment in oil and gas.
“It’s not going to happen under a Labour government. The current government and the Treasury are only there to take and not to give in any way.”
Tommy Dreelan, managing director of north-east oil service company Aker Qserv, said the government needed to work more with oil service companies and operators.
“We need more tax incentives to get more companies to drill and develop smaller oil and gas deposits and tie them back to existing infrastructure. If this does not happen now, these opportunities will be lost for ever and the life of the North Sea will be shortened. Another issue is the banks – people can’t get the funding to carry out developments.”
Chancellor Alistair Darling hinted on a recent visit to Aberdeen that tax breaks for the offshore industry could be on the cards.
