Oil companies are lobbying Chancellor George Osborne to have North Sea taxes slashed from 80% to 30% as the oil price collapse puts production under threat.
Since June last year the price of benchmark Brent crude oil has fallen over 50% from $US117 a barrel to below $US50 a barrel today.
The falling price is squeezing the margins of producers as their cost of extraction remains fixed while the profits they make on each barrel continue to decline. The sharp falls have already resulted in hundreds of North Sea job losses with oil behemoth BP announcing plans to cut 200 jobs and 100 contractor roles following similar moves from ConocoPhillips, Chevron and Shell.
Now Malcolm Webb, head of lobby group Oil & Gas UK, is calling for drastic action to prevent what he is calling a “crisis” in exploration.
He said: “Some companies are paying 80% as the highest tax rate on fields in the North Sea. We would like to see 30% as the top tax rate and our industry treated the same as any other. We now have a situation where one-third of UK offshore fields are in negative cash flow, that means approaching 100 fields.
“If we have sub-$US50 oil [price per barrel] for a couple of years it is inevitable that some will be closed and decommissioned.”
The appeal comes on the back of Chancellor George Osborne announcing his decision to ease the tax burden on North Sea oil companies in December. Osborne cut a “supplementary charge” rate from 32% to 30%, extend other breaks from six to 10 years and provide a new tax-free allowance.
It appears he remains open to further measures to protect the ailing industry.
Discussing the impact of the falls in the oil price he said (emphasis added):
“Of course that’s all very welcome. But there is one part of our country where it’s a real challenge and that’s the North Sea oil and gas industry which is a really important industry for us.
“That’s why this month we have cut taxes in the North Sea and of course, with the budget approaching we’re going to look at what more we can do to support investment there.”
It’s unlikely that the oil industry will get everything that it is asking for, but with the General Election only a few months away the temptation to be seen to be protecting jobs in a strategically important industry may see oil companies getting at least some of the items on their wish list.