The oil and gas industry has called for tax cuts to ensure further exploration and extraction of the North Sea is encouraged, following reports of a drop in confidence within the sector.
Firms have called for changes to the fiscal regime ahead of the Chancellor’s Autumn Statement next week.
The call comes after the 21st Oil and Gas Survey found that, for the first time since 2008, more operators and contractors are pessimistic about their UK Continental Shelf (UKCS) activity than are optimistic.
The survey shows 15% of firms are more confident about their UKCS activity than a year ago, while 46% are less optimistic.
Almost two-thirds of the 700 firms surveyed – 62% – believe the Government’s top priority should be a revision to the fiscal regime to ensure it encourages exploration and extraction of reserves.
One respondent to the survey said “a sliding scale tax on mature declining fields would extend the economic date for cessation of production (and) improve the investment case for development of mature fields”.
Another said that “if we don’t maintain or increase the level of exploration and extraction there will be no meaningful business in 20 years”.
A further 17% of firms believe the Government’s top priority should be developing a strategy for implementing industry expert Sir Ian Wood’s recommendations, and 9% believe improving collaboration within the industry should be the number one aim.
The creation of a new regulatory body funded by industry is top of the agenda for 5% of companies.
Uisdean Vass, oil and gas partner at law firm Dickinson Bond, which sponsors the survey, said: “This survey provides a stark warning for the Government.
“Confidence is at its lowest since 2008. Costs are making exploration and production in the UKCS, relative to other petroleum provinces worldwide, increasingly less economical, exacerbated by low oil prices and high tax rates ranging from 62% to 81% paid by producers in the UKCS.”
James Bream, research and policy director at Aberdeen and Grampian Chamber of Commerce, which conducts the survey, said: “This year, we have seen a record survey response – that and the results highlight the critical situation in the North Sea.
“In a mature basin like the UKCS, the industry must cut costs, innovate and increase collaboration, but it cannot work in isolation of Government and a consistent, fair and stable tax regime is crucial.
“Companies are not convinced they can get a fair return on their investment and in a global industry, it is very simple for them to move their capital elsewhere. The Government must be aware that decisions in the next few months will also have a major impact on the £35 billion supply chain that exists in the UK.
“We feel that this cut in the tax rate would create a new level of trust and would act as a clear statement of intent from the Government that they are committed to maximising economic recovery from the UKCS.”
A Treasury spokeswoman said: “The Government is committed to maximising the economic recovery of the UK’s oil and gas resources and recognises the large number of jobs the industry supports.
“The fiscal review has been looking at the longer term tax treatment of the oil and gas industry, including how it can continue to encourage investment in the North Sea, whilst ensuring the nation continues to receive a fair share of profits. The initial findings of the review will be published alongside (the) Autumn Statement.”
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