Oil and gas tax to cost UK £50bn, 15k jobs
London – The UK government’s 2011 Budget will scupper at least 25 projects, accounting for over 1 billion barrels of oil and gas, £12 billion of investments and shorten the lifespans of 20 producing fields by up to five years, warns an updated ’activity survey’ by UK Oil & Gas.
The research shows that companies will continue with most of the projects to which they are contractually and commercially committed. However, investment earmarked for projects considered likely to go ahead over the next 10 years has fallen by 30% to £23 billion.
The survey results are in line with the conclusions of a study by Professor Alex Kemp which indicate that, over the remaining life of the UK province, reserves of 2.25 billion barrels may be lost.
Since the Budget, the industry’s top priority is to seek engagement with the Treasury to try to reduce the negative impacts of the tax change on future investment, according to Malcolm Webb, chief executive of Oil & Gas UK.
The report, said Webb, highlights the need for new and extended field allowances, improved taxation strategies and a more predictable fiscal regime to re-build investor confidence.
“If these projects do not go ahead, over time the UK will lose out not only on the creation of around 15,000 jobs across the UK but also on oil and gas production equating to over a year’s domestic supply,: said Webb, noting that energy imports worth £50 billion would be required to fill the gap.
Webb continued: “Whilst we fully appreciate the financial difficulties which the Government now faces, reserves left in the ground will not generate any tax revenues and we estimate that direct tax receipts of £15-20 billion will be foregone if the newly marginalised projects do not proceed.”
The survey reveals that the tax increase has not only reduced the viability of a number of new projects but also the ability of older fields to attract the investment they need. The continued operation of these older fields, which are often located at infrastructure hubs, can be crucial as their removal can result in oil and gas nearby being left undeveloped.
“Investors are exposed to oil price volatility equally in all territories,” said Webb. “However, successive and unexpected negative changes in our tax regime reduce the attractiveness of the UK and put it at a competitive disadvantage.
“Constructive discussions must now proceed between the Treasury and the industry. The items to be addressed are new and extended field allowances, the resolution of the decommissioning issues, the construct and operation of the trigger mechanism and last but certainly not least, finding a cure for the chronic fiscal instability of the UK regime.”