Bad Budget for UKOOA

Responding to yesterday’s Budget statement, the UK Offshore Operators Association (UKOOA) accused the Treasury of ignoring the urgent needs of the UK‘s offshore oil and gas industry. The UKOOA claims production is being undermined by high costs and punitive tax.

Malcolm Webb, UKOOA’s chief executive, said: ‘The Treasury clearly recognises that lower taxes are good for business, but unfortunately fails to apply that principle to our industry.

‘UK offshore oil and gas producers have not been given any reduction in corporation tax and still continue to suffer under a punitive 50% rate for corporation tax and a total tax rate of 75% on the production from its older assets. The Chancellor was quick to raise the tax take from this industry when he saw oil and gas prices rising towards $60 dollars a barrel. But now that the price of gas (which makes up almost half of total UK production) has fallen to the equivalent of $20 per barrel, he sits on his hands.

‘With cash flows from UK gas fields now under severe pressure and the average cost of new developments running at $25 per barrel, doing nothing is simply not good enough. The Treasury needs to wake up to current realities.’

UKOOA’s latest member investment and activity survey, published last month, shows a drop in the forecast capital investment for 2007 of £1-£1.5bn, to around £4-4.5bn after three years of growth.

Mike Tholen, UKOOA’s economics and commercial director, said: ‘Sharply rising industry costs are a global phenomenon but they leave the mature UK sector increasingly exposed to lower oil and gas prices. The situation regarding gas is particularly acute.’

It is estimated that the UK still has reserves of up to 25 billion barrels of oil and gas to recover but as a mature basin, faces increasing economic and technological challenges.

UKOOA says sustained investment will be essential to maintain the pace in exploration for new oil and gas discoveries, to bring on new developments and maximise the recovery of the UK‘s reserves. With the right business climate, including an appropriate tax regime, the UK industry could still be producing 40% of the country’s primary energy needs in 2020 and significant volumes for decades to come.