Oil & gas industry takes tax-hike case to Westminister
5 May 2011
London – Representatives from the industry trade association Oil & Gas UK have given evidence to the Energy and Climate Change Committee in Westminster for its inquiry into the implications of the 2011 Budget on the UK’s offshore oil and gas industry.
The association’s co-chairs, Paul Warwick, ConocoPhillips president, UK and Africa, and Robin Davies, global vice-president, business improvement, at Subsea 7, were joined, on 4 May, by Oil & Gas UK chief executive, Malcolm Webb, to voice their members’ concerns at the impact of the tax increase on investment and activity in the sector.
Commenting after the evidence session, Webb highlighted the importance of the offshore oil & gas industry to the UK economy in terms of employment, investment, tax revenues and energy security. Noting that every £1 billion invested by the industry supports around 15,000 jobs, he warned that it could not take shocks such as the recent tax hit introduced by the Chancellor last month.
The Oil & Gas leader called for advance consultation on fiscal change, as is done currently in the Netherlands, saying that the industry is ready to work with the Government on areas which have been jointly identified with the Treasury for further discussion.
“First, we need to discuss the fiscal treatment of gas, which represents 46% of UK production, and has been particularly damaged by the tax move,” said Webb. “Gas prices in the UK remain substantially below the suggested $75/bbl trigger price yet bear similar costs to oil for extraction.
“The tax increase will inevitably deter new investment in the UK’s gas resources which will increase our reliance on more expensive imported gas, to the detriment of the economy and the consumer.”
Webb went on to call for an increase in existing field allowances and for new allowances, such as for oil and gas prospects west of Shetland and mature, pre-1993 fields that pay the additional Petroleum Revenue Tax (PRT) on top of corporation tax and the supplementary corporation tax.
Doing so will reduce the risk that these fields will be decommissioned in the near future and their infrastructure removed, limiting the industry’s ability to recover small remaining reserves of oil and gas nearby, he said.
Webb also argued that the Chancellor’s trigger-price concept was fundamentally flawed and that the current proposal of a $75/bbl trigger price was inconsistent with the Government’s previous position.
“Last summer, when oil was $84, the Chancellor offered stability and suggested general satisfaction with the regime. Given $84 was acceptable then, and presumably there was some leeway in this price, it is inappropriate to now suggest a lower trigger price of $75 oil,” he said.
The UK oil & gas industry is also concerned about the Budget move to cap decommissioning relief at a rate lower than the tax charge.
“Given Government has offered to engage on decommissioning, Oil & Gas believe it is appropriate to postpone implementation of the proposed restriction on decommissioning reliefs and bring all the issues together under the remit of the joint Treasury / Industry consultation for resolution by Budget 2012,” said Webb.
(Click here to see the full Oil & Gas UK submission to the Energy and Climate Change Committee)
