Chief Secretary to the Treasury Danny Alexander yesterday further defended the government’s “oil exploration tax”, claiming profitable companies operating in the North Sea needed to pay a fair amount of tax.
The MP for Inverness was invited to open the recently-completed Aberdeen offices of Maersk Oil, which has confirmed it will press ahead with a £1billion investment in the Central North Sea thanks to support for field development laid out in Wednesday’s Budget.
But the senior industry figures who attended the event in Aberdeen yesterday also expressed their dismay over the so-called bareboat chartering tax, which is expected to cost the industry £1billion over the next year.
Sir Ian Wood, author of the report on maximising North Sea potential, said the tax was “regrettable”. Professor Alex Kemp of the University of Aberdeen said it was “unfortunate”. Martin Rune Pedersen, managing director at Maersk Oil UK and host of the event, said the move unveiled by the Chancellor George Osborne in his Budget was “unwelcome”.
But the industry trio were also highly enthusiastic about the government’s tax breaks for so called “ultra-high-pressure high-temperature” (uHP/HT) fields, as well as its confirmation that recommendations made in Sir Ian’s report, including the establishment of an industry regulator, would be in place quickly.
Mr Alexander insisted this week’s budget was “hugely positive overall for the North Sea”.
“The new high pressure high temperature allowance is opening up a huge amount of investment in new developments. It is also important we have a fair tax regime, that the companies who are making significant profits do pay a proper amount of tax. That is what we have been seeking in relation to the rig hire companies.
“Getting the balance right between having a fair tax system and one that incentivises development is what we seek to do with this Budget.”
Mr Pedersen confirmed that the new uHP/HT was an “enabler” for the firm’s £1billion Culzean gas discovery which it intends develop this year.
“It is what we believe is required to ensure we can keep up the pace of progress of the development.”
But he added that rising costs remained a big challenge for the industry.
“[The bareboat tax] was an unwelcome event but I also noticed the government has committed to come back in year’s time to review the impacts and potentially look at the measure again.”