North Sea needs tax break, says industry

Aberdeen & Grampian Chamber of Commerce’s survey of 700 operator, contractor and service companies found that 62% of respondents believed the government’s top priority with regard to the UK Continental Shelf (UKCS) should be a revision to the fiscal regime to ensure it encourages exploration and extraction.

Confidence is at its lowest since 2008

Bond Dickinson’s Uisdean Vass

There has been a sharp turn from an overall optimistic mood in the past two years’ surveys to a pessimistic one, with the survey showing that just 15% of firms are more confident about their UKCS activity than a year ago, while 46% are less optimistic.

Less than half of respondents (49%) are working at or above optimum levels in the UKCS, the first time the majority of firms have been working below optimal levels for three years.

An increasing number of contractors (71%) say that they believe they could be involved in decommissioning activity in the next three to five years, the highest level since 2011.

Explaining the call for tax reliefs in addition to existing mechanisms such as the brownfield allowance, one respondent to the survey said: “a sliding scale tax on mature declining fields would extend the economic date for cessation of production [and] improve the investment case for development of mature fields.”

Another warned that “if we don’t maintain or increase the level of exploration and extraction there will be no meaningful business in 20 years.”

Uisdean Vass, oil and gas partner at law firm Bond Dickinson, which sponsored the survey, said:“This survey provides a stark warning for the Government. Confidence is at its lowest since 2008. Costs are making exploration and production in the UKCS, relative to other petroleum provinces worldwide, increasingly less economical, exacerbated by low oil prices and high tax rates ranging from 62% to 81% paid by producers in the UKCS.”

The call for further tax relief follows the launch of the Treasury’s latest tax review this summer.