SIR Ian Wood has renewed his concerns around North Sea oil, warning that six billion barrels of oil reserves could be abandoned if radical steps are not taken to reform the tax regime for offshore drilling.


The potential loss - a third of what remains under the seabed - would be worth £200 billion to the British economy.

Sir Wood, founder of Wood Group, one of the UK's largest oil and gas engineering companies, said that the key was not to allow "irreversible damage" by adjusting the current tax regime.

He said: "The danger is that if we lose momentum now and lose resources and assets, and don't get the fiscal regime fit for a quite highly mature area, we will come down to 10-11 billion (oil reserves). That's a huge economic loss and jobs loss for the UK."

Around 450,000 jobs are directly supported in the UK through the oil and gas industry, which is mainly centred in the North East of Scotland around Aberdeen.

Since June last year global oil and gas hubs suffered a slump which saw prices fall from more than $100 per barrel to around $50, a level which experts fear could remain in place for years to come.

Hundreds of jobs in Aberdeen have already been lost and many more are expected as the industry adjusts to the downturn

As a result, Sir Wood, also an independent adviser to the Treasury on the North Sea, led a Coalition government review into the future of the North Sea.

He proposed a reform of the UK's offshore sector, including the creation of a new regulatory framework and tax reforms in order to boost investment and maximise recovery of the remaining 16 billion barrels thought to still be held in reservoirs.

However, the oil expert now believes there is a danger that the $50 oil prices could lead to the early decommissioning of North Sea facilities and the loss of six billion barrels of oil.

The move would mean a potential £200bn loss to the British economy in revenue and investment.

He has renewed his calls for George Osborne to deliver a package of tax cuts and incentives, like directly funding exploration work in the North Sea, when he presents his final budget of the current Government in March.

A spokesman for the Treasury said: "The government is following developments in the North Sea closely and is working with industry leaders as a matter of priority to address the challenges the industry faces.

"In December, the Chancellor announced an ambitious programme of reform across the oil and gas tax regime, including an immediate cut to the Supplementary Charge, already in effect, and recognition that the tax burden must continue to fall over time.

"In January, the government launched a fast-tracked consultation into a new streamlined investment allowance designed to reward investment in the North Sea."

In January the Chancellor also made comments to the Commons Treasury select committee, saying "I took decisions in the Autumn Statement to reduce taxes on North Sea oil, anticipating the pressures that the falling oil price would have on the industry and I'm sure we are going to have to take further steps at the Budget."

Last week, two of Britain's largest international oil and gas companies, BP and BG Group, also gave dire warnings over the future of the North Sea as they revealed falling profits and plans to cut billions of pounds of spending.

Bob Dudley, chief executive of BP predicted that a third of the oil fields operating in the North Sea could be unprofitable with oil prices at their current levels.

He said: "The North Sea decline is inevitable," said Mr Dudley, adding that the oil industry was heading into a profound period of downsizing that would require companies such as BP to "reset for the next several years".

Andrew Gould, executive chairman at BG Group, echoed Mr Dudley's concerns as he unveiled a slump in profits at the gas-focused operator.

He said: "I don't think you can really, at these oil prices, hope for a major resurgence of the North Sea on the basis that there are a lot of other places in the world where the reserve life is a lot more promising than it is in the UK sector of the North Sea."