Prime Minister David Cameron hinted yesterday that new tax breaks could be offered to stimulate North Sea exploration and safeguard thousands of jobs.
He signalled that measures would be considered to boost the offshore industry, telling MPs that Chancellor George Osborne had been listening “very carefully” to calls for a tax system to maximise oil and gas recovery.
The Conservative leader made the remarks at Westminster just two days after trade body Oil and Gas UK issued a dramatic warning in the Press and Journal that the North Sea was facing an “exploration crisis” which could jeopardise jobs and investment.
The rate of exploration well drilling has halved over the last decade, and industry leaders fear recent record levels of investment will drop off after next year unless there is “urgent” action.
With just weeks to go before the next Budget, north-east Liberal Democrats Sir Malcolm Bruce and Sir Robert Smith have urged their government colleagues in the Treasury to tackle the issue in the last few days, discussing the prospect of tax breaks.
Concerns about exploration have also been raised by industry doyen Sir Ian Wood, who was appointed by UK ministers to prepare a blueprint for the future of the offshore sector.
Sir Ian outlined in an interim report the need to “incentivise seismic and exploration wells for operators who currently lack production and also for less prospective areas”, and concluded that there must be a “significant step-up” in exploration over the next five to 10 years to maximise the North Sea’s value.
The issue was raised at prime minister’s questions in the Commons yesterday by Sir Robert, MP for West Aberdeenshire and Kincardine, and a member of the energy select committee at Westminster.
He said: “Whilst we can currently celebrate record levels of investment in North Sea oil and gas production and all the jobs that it supports, we do have to recognise that there’s growing concern at the lack of exploration.
“Will the prime minister therefore recommit the government to its tax stability policy and encourage as much exploration as possible to ensure future investment?”
Mr Cameron responded: “I can certainly give my honourable friend that assurance.
“It’s very important that we make the most out of that asset that is the North Sea.
“That is what the Wood Report is all about and we are putting those proposals into place, and I know my right honourable friend the chancellor will listen very carefully to what he (Sir Ian) says about making sure that the tax system for the long term encourages the maximum recovery.”
Mr Osborne left the industry reeling in 2011 with his now infamous £10billion tax raid on producers, but has subsequently moved to restore confidence with new field allowances and contracts guaranteeing tax breaks for decommissioning North Sea assets.
The Treasury would not be drawn on any measures to boost exploration last night, saying: “We don’t give detailed commentaries on what we are or aren’t looking at around the Budget.”
Malcolm Webb, head of Oil and Gas UK, said: “We are greatly encouraged by Prime Minister David Cameron’s reaffirmation of his commitment to the oil and gas industry, the forthcoming Wood Report, and in particular to ensuring the tax system encourages maximum economic recovery of the UK continental shelf (UKCS) in the long term.
“We have recently highlighted the problems that exist regarding UKCS exploration and in order to boost exploration and the prospect of more discoveries, we certainly need a safe, supportive and predictable fiscal environment in which to operate, in order to both sustain future production and to promote the UK’s growing supply chain, which already contributes £27billion a year to the economy.”
Sir Robert said: “Investment in North Sea oil and gas is best encouraged by a stable tax regime and a constructive regulatory environment.
“Although we have cause to celebrate current investment levels, it is important that the government builds on Sir Ian Wood’s recommendation and encourages future activity.”
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