Calls for tax reform to support UK oil and gas industry

There has been a consistent theme throughout the industry media today – calls from all sides for George Osborne to reform the tax regime to provide much needed support to the UK offshore oil and gas industry.

Ahead of the March Budget on Wednesday 16th, Westminster MPs, MSPs and PwC have all lined up to echo Oil and Gas UK’s statement that tax relief is needed to secure the future of the UKCS. Mike Tholen, OGUK’s economics director, has called for a reduction of twenty percentage points to the tax on production profits and the removal of PRT. In addition, Tholen called for changes to decommissioning tax relief to encourage the extension of late-life assets.

Previous studies have shown that, taken individually, reducing costs has a far greater impact than lowering taxes on transforming the economics of offshore production and lowering the break-even threshold. In addition, Treasury has made it clear in the past that the industry needed to address cost escalation before further concessions would be implemented. The 40% reduction in the average unit operating cost demonstrates the industry is travelling in the right direction but signs are that cost reduction alone may not be enough.

With the March Budget around the corner, we also await the publication of a detailed study from Aberdeen University who have been analysing the potential impact of implementing different tax changes in conjunction with the various cost efficiency initiatives and technologies available.

Whilst we look forward to reading their recommendations and hearing what the Chancellor announces next week, the commitment to cost-efficiency regardless of the prevailing oil price must be the long-term legacy of this downturn.