THE trade body Oil & Gas UK is urging Chancellor Philip Hammond to use his Autumn Statement to help boost investors’ confidence in exploration and production in the North Sea.
It said the sector was facing fierce global competition to attract investment in an uncertain environment, with a low oil price and a maturing industry.
The body’s 2016 economic report found that investment in the UK Continental Shelf (UKCS) had fallen to around £9 billion this year, down from a record £14.8bn in 2014 – an illustration of the difficulty for investors accessing development finance. Chief executive Deirdre Michie said: “Sentiment and stability are important and the Chancellor has a real opportunity to use the autumn statement to send a clear message to investors that the UK Continental Shelf is a great place to do business.
“Exploration and development drilling has fallen to record lows. Industry figures reveal a drought of new investment approved in 2016 and 2017 looks no better.
“I have asked Mr Hammond to get behind the UK’s oil and gas industry by providing certainty in our fiscal regime, recommitting to the Treasury’s ‘Driving Investment’ strategy for the sector and, as part of the UK’s new industrial strategy, recognising our supply chain as a key strength in the economy, with world leading capability – equally valuable as aerospace or the automotive sectors, for example.
“The UK oil and gas industry is much more globally competitive than it was two years ago. The cost of doing business in the North Sea has come down significantly and production has increased for the first time in 15 years thanks to the industry’s efforts to make its operations more efficient.
“We urgently need to see new entrants encouraged into the market and increased asset trading is one area that could boost activity in the North Sea by facilitating the trading of late-life assets.
“But investors are also looking for certainty and we can’t underestimate the importance of government sending a strong signal of confidence and support.”
Oil & Gas UK is asking for four commitments as part of Hammond’s statement: a re-affirmation of the Government’s commitment to the “Driving Investment” strategy to recognise the need for a more competitive, simple and predictable fiscal regime as the UKCS continues to mature; and recognising the sector as a key element of the economy by promoting the competitiveness of the UKCS and the oil and gas supply chain.
It also wants the Government to finish the work on decommissioning tax relief over recent budgets by introducing measures to transfer tax relief on an asset sale, which would unlock the trading of assets by encouraging new entrants to the market and freeing up new investment.
New measures were also needed to extend the investment allowance for operating expenditure aimed at increasing production from an asset or keeping it producing for longer.
Oil & Gas UK said less than £100m of fresh capital had been committed to the UKCS this year, with only one new field approved. This compared with five greenfield projects sanctioned last year.
The figures from its 2016 economic report demonstrated that urgent action is required if industry is to maximise the economic recovery of up to 20 billion barrels of oil and gas equivalent still available.
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