UKOOA responds to pre-budget report

The

(UKOOA) says it is shocked by the Chancellor's decision this week to impose a 20 percent Supplementary Corporation Tax rate on

oil and gas producers.

UKOOA claims the rise will take an extra £6.5 billion out of the industry over the next three years. The Treasury is expected to reap £11 billion in tax revenues from North Sea producers this year, double the amount paid last year, and treble the amount forecast two years ago.

Malcolm Webb, UKOOAs Chief Executive, said: "Seventy-four percent of our primary energy supply comes from oil and gas. It is hugely important that we maximise UK oil and gas production and I am staggered that the Chancellor, who speaks of the need for stability and long-term investment, should take this action.

"It is almost beyond comprehension that the Government has failed to grasp the vulnerability of the Industry's future in the UK. His move could not come at a worse time. North Sea activity has recovered remarkably since 2002 when it was last hit by a punitive tax change. Investment, exploration and new field development in the North Sea are now reaching levels last seen around a decade ago.

"It is extraordinary that the Government has not appeared to have learned from past experience, and its failure to do so will cost this country heavily in terms of jobs, inward investment, balance of trade, security of supply and ultimate tax revenues.

"It will deter investment in new fields and make older fields less attractive for increased recovery. Moreover, the impact will be felt significantly by smaller oil and gas producers. Loss of investment will lead directly to the permanent loss of reserves and a swifter onset of decommissioning.

"The unexpected tax hit on the Industry in 2002 led to a major slump in investor confidence in the North Sea. Exploration and development activity fell to record lows as investment left the North Sea for other less challenging parts of the globe with lower costs.

"At a single stroke, the Treasury has rewritten the Industry's future. It will severely undermine business confidence in the UKCS. This has been done not once, but twice in the space of just three years and we fear that this time, the North Sea will not be as resilient.

"Industry efforts are currently focussed on postponing the decommissioning of North Sea platforms and pipelines so that the infrastructure can be used to maximise recovery of existing reserves and to reach new discoveries. This requires major investment. The announcement cannot have anything other than a seriously corrosive effect on the UK's prospects for long-term investment, the jobs which that investment supports and the level of UK security of supply.

"The Chancellor's move has pre-empted the Energy Policy Review and will distort its outcome."