In the Autumn Statement, the UK Government announced a number of measures aimed at increasing the competitiveness of the UK Continental Shelf. This included a 2% reduction in the Supplementary Charge to Corporation Tax, new tax allowances to encourage development of complex fields as well as enhanced tax measures for the exploration phase.
But this was the curtain raiser to the main event in Aberdeen, where the Chief Secretary to the Treasury, Danny Alexander MP, presented a more detailed roadmap for the future fiscal approach to the UK oil and gas tax regime.
The reforms to the oil and gas tax regime announced by the Chancellor and Danny Alexander this week are, of course, welcome.
Particularly in light of the Chancellor’s admission that it has been 21 years since the oil and gas industry last received a tax reduction.
However, this announcement only goes a short way towards reversing the unexpected and damaging 12% increase in Supplementary Charge tax introduced by Danny Alexander at the 2011 Budget.
The Treasury’s plan to reform the oil and gas fiscal regime is an interesting and encouraging document, which recognises the importance of the industry, while at the same time acknowledging the need to be more competitive in attracting and promoting capital investment in the UKCS.
It has the hallmarks of collaboration, with the Treasury accepting that they must adjust their thinking as to tax receipts from the UKCS, and it is the first time in recent memory, committed to black and white, that ‘we are all in this together’.
The Treasury does not publish a document of this importance without it having being very carefully vetted.
It looks as if the UK Treasury has a fiscal plan that might work for the UK Continental Shelf and the industry appears broadly receptive.
But there were multiple warnings issued to Treasury chief secretary Danny Alexander in Aberdeen that time is running out and that he must deliver concrete measures by the Government’s Spring Budget.
Indeed, this urgency is made all the more acute by the revelations that Opec swing producer Saudi Arabia is now apparently content to let the oil price drop to around $60 a barrel and that it be a long, rough ride for everyone.
The gathering of industry leaders and media at Oil & Gas UK’s offices to listen to Alexander and Tory colleague Priti Patel (exchequer secretary) was large.
There are three things wrong with the UK Parliament's approach to the oil industry.
Firstly, there is no gratitude whatsoever. Over the last 40 years more than £330,000million has poured into the Westminster Exchequer, around £60,000 per head for every Scot.
Scotland's resources have bankrolled successive Tory and Labour Chancellors.
They present any crumb of a concession as if it were a gift.
The UK Government has unveiled a radical plan aimed at rewarding investment in the North Sea in a bid to see as much oil and gas extracted as possible.
A review of the fiscal regime for the oil and gas sector was announced in this year’s Budget, with a new Treasury report saying “significant change” was needed in order to continue to attract investment.
Chief Secretary to the Treasury Danny Alexander launched the new report as he met key industry figures during a visit to Aberdeen.
There is still “significant hydrocarbon reserve” in the UK Continental Shelf (UKCS), the Government said, which could “generate significant benefits for the UK” if it can be recovered.
Smart thinking oil and gas professionals in the Organisation of the Petroleum Exporting Countries (OPEC) are continuing to pump their easy to reach hydrocarbons for their own long term gain. It is their prerogative in a competitive world marketplace.
This and the vast quantities of shale gas flooding the North American market have combined to shatter the certainty that existed in oil prices.
World renowned entrepreneur and founder of Microsoft Corporation, Bill Gates once said: “Success is a lousy teacher. It seduces smart people into thinking they can't lose.”
Not only is OPEC refraining from cutting oil output to stem the five-month plunge in prices, it’s adding to the supply glut.
Just five days after the Organization of Petroleum Exporting Countries decided to maintain production levels, Iraq, the group’s second-biggest member, inked an export deal with the Kurds that may add about 300,000 barrels a day to world supplies.
In a global market that neighboring Kuwait estimates is facing a daily oversupply of 1.8 million barrels, the accord stands to deepen crude’s 39% plunge since late June.
Oil market analysts are debating if oil will fall to $50. In North Dakota, prices are already there.
Crude sold at the wellhead in the Bakken shale region in North Dakota fell to $49.69 a barrel on November 28, according to the marketing arm of Plains All American (PAA) Pipeline LP.
That’s down 47% from this year’s peak in June, and 29% less than the $70.15 paid for Brent, the global benchmark.
Offshore firms will be offered new tax breaks today to trigger a fresh wave of North Sea exploration, it can be revealed.
Energy Voice has learned that Chief Treasury Secretary Danny Alexander will reveal plans to try to end the UK's exploration crisis through a system of tax credits for seismic surveys.
The move is expected to be welcomed by industry leaders who have repeatedly called for extra incentives to stimulate flagging exploration rates.
The head of oil and gas for professional services firm EY said the Chancellor's announcement could prove to be a "turning point" for exploration and production in the North Sea.
In an interview with Energy Voice, Derek Leith said the initial steps taken may receive a mixed review from the industry.
Further announcements are expected tomorrow, in Aberdeen, by the Chief Secretary to the Treasury, Danny Alexander.
Chancellor George Osborne took the floor yesterday for what is the last Autumn Statement before the next general election, and probably the current Government’s final opportunity to impact the economy.
But given the fiscal position the Government finds itself in with the budget deficit remaining high and with tax revenues lower than expected, was the Chancellor able to deliver any December cheer for the oil & gas industry?
Well, we definitely saw a number of positive items. The Government restated its support for both the onshore and offshore oil & gas industries, with a mixture of tax and other incentives such as the allocation of £31m to fund the creation of a world class sub-surface research test centre through the National Environmental Research Council.
We welcome the financial incentives named in yesterday’s Autumn Statement, which demonstrate that the Government has not only recognised the increased volatility of the North Sea oil sector stemming from falling global prices and diminishing reserves, but is taking action.
We are pleased to see that, in line with GE Oil & Gas, this Government regards investment, innovation, collaboration and investment in future talent as the keys to unlocking the North Sea’s remaining potential.
Oil & Gas exploration and extraction in the North Sea has been faced with increased complexity resulting in cost escalations causing delays and even cancellation of some projects; the supplementary charge reduction and ring fence expenditure announcements should have significant impact on freeing some investment.
We watched yesterday's Autumn Statement from the Chancellor George Osborne, with feelings of hope and trepidation.
We understand the economic constraints under which today’s Autumn Statement is delivered and there’s consensus in our offices this afternoon that the immediate reduction of two percentage points in its tax rate is an important first step towards improving the fiscal competitiveness of the UK North Sea – but, without question, more needs to be done.
The FTSE 100 Index finished 25.5 points lower at 6716.6 as continued volatility in oil prices - with Brent crude trading at just below 71 US dollars a barrel - pegged back the performance of commodity stocks.
Royal Dutch Shell was in focus after spiking yesterday on the back of speculation linking it to a merger with BP. Shares fell back 33p to 2259p but BP rose another 3p to 436.85p.
Wave energy company Aquamarine Power has announced plans to “significantly” downsize its business.
It means an undisclosed number of jobs will be lost.
According to CEO, John Malcolm, “this will involve retaining a core operational and management team to run the business and continue maintaining our Oyster 800 wave machine at the European Marine Energy Centre in Orkney”.
Official figures show that North Sea tax receipts are predicted to fall by 40% over the course of this year.
The Office for Budget Responsibility (OBR) said revenues to the Treasury would drop to £2.8billion by the end of 2014/15, which is 0.9% lower than was forecast at the Budget in May.
The independent body also said that tax to the Exchequer from the North Sea would be £1.6 billion lower in 2015-16 than was predicted in March, with “smaller reductions” due in later years.
Oh well, the North Sea is being kept on tenterhooks for a few more hours, with Treasury first secretary Danny Alexander scheduled to deliver the supposed main news today tomorrow.
All chancellor Osborne was prepared to do was trail a few crumbs without even mentioning the North Sea fiscal review, let alone whether it will be the cornerstone of the Alexander delivery, though it of course will be.
Just three measures were mentioned in his Autumn Statement address: “I can tell the house today that we will go ahead with an immediate reduction in the rate of the supplementary charge from 32% to 30%, we will expand the ring-fenced expenditure supplement from six to 10 years and we’re introducing with immediate effect a new cluster area allowance.”
Chancellor George Osborne has confirmed that he will cut North Sea oil and gas taxes.
He pledged to reduce the supplementary charge from 32% to 30%, expand the ring-fenced expenditure supplement from six to 10 years, and introduce a new cluster area allowance.
The UK Government insisted that the changes would trigger billions of pounds of investment in the North Sea and create thousands of new jobs.
The cut in the supplementary charge represents a partial climb-down by the chancellor, who infamously almost wiped out investment at a stroke when he hiked it from 20% to 32% without consultation in 2011.
The FTSE 100 bounced back yesterday as stronger commodity stocks helped it more than recover the ground lost in a 1% decline over the previous session.
The rebound came as the price of Brent crude rose to $71 a barrel, having slumped to a five-year low close to $67 on Monday after Opec ministers failed to cut production.
Heard the one about Vladimir Putin, the oil price and the ruble’s value against the dollar? They will all hit 63 next year.
That’s the joke doing the rounds of the Kremlin as the Russian government digs in to weather international sanctions over the conflict in Ukraine. According to at least five people close to Putin, pressure from the US and Europe is galvanizing Russians to withstand a siege on their economy.
The black humor is part of an image of defiance not seen since the Cold War. As the economy enters its first recession in more than five years, the ruble depreciates to records and money exits the country, Putin’s supporters are closing ranks and say he’s sure to run for another six-year term in 2018.
We all need to remember, but often choose to forget, that the oil & gas exploration and production is a highly cyclical business. There have been seven significant price cycles since 1970 and also a few minor ones between times, so yet another should come as no surprise.
The real surprise is that no one ever seems to build the probability into their business planning!
The reasons for the fall in Brent crude prices from $115 in June to below $71 following November’s OPEC meeting are well documented, as is the realisation that Saudi Arabia is now defending market share, rather than a minimum price.
The plunging oil price is giving an unexpected lift to Europe’s crisis-battered southern periphery as decreasing fuel costs help spur demand.
Spain, Europe’s fourth-largest economy, could add as much as 1 percent to annual growth with oil prices between $80-90 a barrel, the government said. Italy, which is in its fourth year of recession, stands to boost GDP 0.3% points with a sustained $10 oil price drop, according to BNP Paribas SA.
“There’s no doubt lower oil prices will act as a stimulus to growth in the region,” Frederik Ducrozet, a Paris-based economist at Credit Agricole, said. “Greece, Spain, Portugal and Italy would be clear beneficiaries.”
Eyebrows were raised after it emerged that the incoming chairman of the new oil and gas regulator would enjoy a £100,000 pay packet for a job that requires just 2.5 days a week work.
The Oil and Gas Authority (OGA), formed on the recommendation of the Wood Review, is on the hunt for a chairman or woman after it recruited former BG Group boss Andy Samuel as its new chief executive.
Mr Samuel, who takes up his new job on January 1, will be paid £250,000 per year.
