WITH Brent Crude in the new era of mid-$60 per barrel, North Sea oil faces an uncertain future.
The upper estimated tax receipts of £10.8 billion up to 2020 announced yesterday by the Oil and Gas Bulletin are certainly less gloomy than those announced earlier in the month by the Office for Budget Responsibility (OBR). But the future of North Sea oil remains somewhat bleak.
Even with the industry restructuring that we have seen in the past year, the cost reduction initiatives that we have heard about in the media, and the radical changes to shift working that are now taking place, North Sea oil is just not an attractive proposition, at current oil prices. Even at over $100 per barrel, many North Sea assets were only marginally profitable.
The industry is on the precipice. Rapid decommissioning in the North Sea remains a firm possibility and in the very near future, without government intervention. Westminster holds all the levers; the Scottish Parliament lacks the powers to act further than it already has. Thoughtful stewardship and strong support by the UK government needs to be forthcoming.
Speaking at the annual Oil and Gas UK Conference earlier this month the First Minister made various pleas to Westminster. Westminster must now use its full range of fiscal powers to help the industry.
It needs to bring the oil and gas tax regime in to line with every other industry in the UK. Both the Petroleum Revenue Tax (PRT) and Supplementary Charge (SC) should be abolished with immediate effect.
The Chancellor George Osborne and his colleagues at the Treasury must also get creative on promoting exploration. With immediate effect, an exploration tax credit system should be introduced.
The Scottish Government made a strong case for this back in January but it fell on deaf ears then, and nothing appears to have changed. Has North Sea oil fallen off the Chancellor’s radar?
Exploration is the life-blood of the industry. The problem at the moment is that there is just not enough drilling taking place for the industry to have a long-term future. Without exploration there is no reason for companies and the supply chain to invest further. The consequence here is that the industry edges ever closer to a new era – that of North Sea decommissioning and on a big scale. When decommissioning kicks in, the industry will collapse like a house of cards.
It is not an industry that should be tossed aside by the Chancellor. It is far too valuable for that to happen. North Sea oil has paid huge sums to the Treasury in years gone by and if the industry is supported appropriately it will do so again in the future.
It should not be forgotten that the industry still employs hundreds of thousands of highly skilled and very well-paid workers across the length and breadth of the UK. Oil and gas exports outside of the North Sea region continue to generate billions of pounds. The Chancellor should not forget this.
A thriving North Sea oil industry is vital to our way of life and national energy security. It provides much of the gas needed to heat our homes and places of work, the petrol needed for our cars, and the black gold needed to drive a thriving economy.
We all know there’s up to 24 billion barrels of oil remaining in the North Sea. If we are to maximise full economic recovery of this and future high tax receipts when oil prices start to spike again, and they will, Westminster must act, and act quickly.
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