NORTH Sea oil production has suffered its biggest slump since records began, the Press and Journal can reveal.
New figures from the UK Government’s Department for Energy and Climate Change show it fell by 15.6% in the first three months of 2011, compared with the same period last year.
It is the biggest decline since the department began recording the data in 1995.
Gas production also suffered a 17.6% drop.
Ageing infrastructure has been blamed for the slowdown – which happened in the months before Chancellor George Osborne launched a £10billion tax grab on the industry in his Budget.
Last night, Derek Leith, oil and gas partner at professional services firm Ernst and Young, said the Treasury tax rises would only undermine attempts to halt the decline.
“While there may be some mitigating factors, this data appears to support the underlying trend of reducing production from the UK continental shelf (UKCS),” he said.
“Clearly, it is in the national interest to try to reduce the rate of decline and push out the time when the UK becomes wholly dependent on imports of oil and gas.
“The medium to longer-term impact of the tax changes will be to reduce the level of investment in the UKCS and, to some extent, undermine attempts to arrest the rate of decline in production.
“The talks between industry and government following the Budget are geared towards identifying means by which the impact of the tax increase on marginal investments can be mitigated to make such marginal investments continue.”
Mike Tholen, economics director at industry body Oil and Gas UK, agreed.
He said: “The decline is worrying and these latest figures emphasise the need for encouraging sustained investment in mature assets.
“Recent increases in tax will not make this challenging journey easier.”
Jim Hannon, founding partner of drilling analyst Hannon Westwood, has previously warned that 30,000 people could lose their jobs if operators reduced their UK exploration activity by 15%.
He said: “The supplementary corporation tax increase was untimely and unwelcome on the back of a poor quarter.
“The decrease in revenues, coupled with the 12% increase in tax take, is very likely to drive oil majors to reconsider the priority that they assign to the UK for investment.
“There is a concern wells and projects will reduce and small companies will be exposed to difficulties in raising finance, and the impact of all this may yet outweigh the tax benefits in terms of job losses.
“On an annual basis, the figures may well improve and probably will do, to bring the annual rate of decline nearer to 7% than 15%.”
First Minister Alex Salmond visited the Treasury on Monday to raise concerns about the impact the tax increase was going to have on the industry.
He said last night: “North Sea revenues are running at an all-time record £13.4billion this year, and of course the maintenance work which underlies the figures demonstrates this vital Scottish industry remains important for the long term as a generator of jobs, skills and revenues.
“However, they also further show that the Treasury’s smash and grab raid on Scotland’s resources is the wrong approach – threatening over 70 new field developments.
“This is why I presented a positive alternative to the chancellor on Monday, which would introduce a specified rate of return allowance on field investment before the supplementary levy is payable.
“Mr Osborne needs to study the detailed evidence that the Scottish Government presented and act on it now.”
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