A LEADING oil economist has suggested that oil company directors should take a pay cut to protect offshore jobs in the North Sea.

Professor Alex Russell, from Robert Gordon University in Aberdeen, told The National that oil companies should pay no tax on North Sea investment in return for a commitment to the sector.

His remarks came as oil prices showed signs of rallying after a plunge last week, as the Organisation of Oil Producing Countries (Opec) hinted that it might reach agreement later this month on freezing oil output.

Russell said: “We could be very radical – we’re talking about offshore tax breaks, but not all oil is offshore.

“Why not just say there’ll be zero tax in the North Sea if companies invest for the long term.

“You could also say that we’re all supposed to be in this game together, let’s look at the salaries of the directors of the oil companies and the regulators.

“Why don’t they take a 20 per cent, 30 per cent, 40 per cent reduction in their salaries?

“It would still be a good salary and they could use that money to save jobs in the North Sea. That would win the support of workers in the industry.

“There’s no reason why the people earning the most should continue to earn the most.

“It’s radical and it would be a challenge to the highest earners – let’s see if they’d be willing to do that.”

Russell added that oil companies seemed to be more concerned with paying dividends to their shareholders than they were about investing in the North Sea.

“That’s the problem we have and it’s a problem both governments have to wrestle with,” he said.

“If the Scottish Government had control over the sector it would be more inclined to look at that action than the UK Government – but that’s unlikely to happen.”

Russell said the UK Exchequer was losing £1.2 billion from petroleum revenue tax and in repaying corporation tax.

“It’s a tax loss situation for the Exchequer at the moment,” he said. “Companies are claiming back corporation tax they’ve already paid.

“But petrol and diesel prices are going up more than the wholesale price of oil, so the UK Exchequer benefits from that through VAT, which brings in around £27bn a year.

“There is money going into the UK Treasury to help the North Sea if they were that way inclined.”

The price of a barrel of oil rose above $40 last week, but later slipped back below. It started to pick up in recent days, hovering around the $38 mark after speculation that Opec would reach agreement on freezing production at its April 17 meeting, regardless of Iran’s position.

Nawal Al-Fuzaia, the organisation’s Kuwaiti governor, said: “There are positive indications an agreement will be reached during this meeting... an initial agreement on freezing production.”

However, Russell said that Opec had never been an effective cartel.

“Putting belief in the future on Opec is probably a mistake at the moment,” he said. “Also, they don’t have control over Iran now that it’s free to produce more or less what it can.

“The general sentiment is that oil will go up and settle between $45 to $60 a barrel in the relatively near future. That said it could plummet below $20 before that happens.

“Anyone who believes in being able to have a good future based on a high oil price is living in a fuel's paradise.

“The problem for the North Sea is that there are very few fields that are profitable. The Buzzard field is incredibly profitable, but outside of that it’s all more a game of trying to get a return on the huge investments that were made years ago, rather than fresh investments in new oil.”