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.
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."
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article