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Trade body claims oil industry tax clampdown is 'perplexing'

THE oil industry has criticised as "perplexing" the Government's decision to proceed with a tax clampdown on oil services while making another attempt to support investment in the North Sea's most difficult fields and backing a review intended to extend the life of the sector.

A number of oil companies have already cancelled planned investment due to concerns over costs of developing North Sea fields. Yesterday, trade body Oil & Gas UK warned that proceeding with the bareboat chartering tax measure, which covers the leasing of drilling rigs and accommodation vessels, will further inflate expenses.

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The Government insisted the move, first proposed in Mr Osborne's Autumn Statement, was to stop companies moving "significant taxable profit" outside the UK.

Oil & Gas UK chief executive Malcolm Webb said the Government's stance was "perplexing". "This can only increase costs on the UKCS (UK continental shelf) where operating costs have increased sharply in recent years," he said.

He added: "We fear that this move will drive drilling rigs, already in short supply, out of the UKCS. Exploration over the last three years has been at its lowest in the entire history of the industry in the UK, with only 15 exploration wells drilled in 2013."

The Government has proposed a new, ultra-high pressure, high temperature cluster allowance, which could benefit explorers in the difficult fields west of Shetland. Under the scheme, profit equivalent to 62.5% of capital expenditure would be exempt from tax.

The Treasury also said that a new body established at arm's length from the Government to oversee the UK's oil and gas resources, will be tasked with reviewing how best to encourage exploration and reduce decommissioning costs. It will report back at next year's Budget.

The same organisation will work with the Government on a review of the tax regime for the UK offshore industry to ensure its incentivises production. The conclusions will be set out at this year's Autumn Statement.

Mr Webb said: "It is increasingly obvious that the offshore oil and gas fiscal regime has become overly complex, burdensome and uncompetitive. The industry faces marginal tax rates of 62% to 81% on oil and gas production, which are unsustainable in a mature basin."

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