Industry chiefs urge tax break for £35bn oil and gas industry

An industry report, published today ahead of next week’s Autumn Statement, reveals the lowest level of confidence in the sector since 2008.

Almost two-thirds of firms surveyed believe the Government’s top priority should be a revision to the fiscal regime to encourage exploration and extraction.

The annual oil and gas survey for the Aberdeen & Grampian Chamber of Commerce attracted the biggest response in its 21-year history.

One respondent said that “a sliding scale tax on mature declining fields would extend the economic date for cessation of production and improve the investment case for development of mature fields”.

Another warned that “if we don’t maintain or increase the level of exploration and extraction there will be no meaningful business in 20 years”.

The oil and gas industry is big business for Yorkshire’s manufacturing industry.

According to the Office for National Statistics, the electricity, gas, steam and air conditioning supply sectors are responsible for 16,000 jobs in Yorkshire.

The Sheffield City Region is home to around 83 companies that serve the oil and gas sector.

James Bream, research and policy director at Aberdeen & Grampian Chamber of Commerce, said: “This year, we have seen a record survey response – that and the results highlight the critical situation in the North Sea.

“In a mature basin like the UK Continental Shelf, the industry must cut costs, innovate and increase collaboration, but it cannot work in isolation of Government and a consistent, fair and stable tax regime is crucial.

“Companies are not convinced they can get a fair return on their investment and in a global industry, it is very simple for them to move their capital elsewhere.

“The Government must be aware that decisions in the next few months will also have a major impact on the £35bn supply chain that exists in the UK.

“We feel that this cut in the tax rate would create a new level of trust and would act as a clear statement of intent from the Government that they are committed to maximising economic recovery from the UKCS.”

The survey found that more firms are pessimistic about their UKCS activity than optimistic for the first time since 2008, the height of the financial crisis.

The importance of the Chancellor’s forthcoming Autumn Statement supports a recent report by Deloitte suggesting that oil and gas firms could be delaying key decisions until after next week’s announcement.

The report revealed that there were just four offshore deals announced in the third quarter of this year, down on 14 in the same quarter in 2013.

Uisdean Vass, oil and gas partner at law firm Bond Dickinson, said: “This survey provides a stark warning for the Government. Confidence is at its lowest since 2008. Costs are making exploration and production in the UKCS, relative to other petroleum provinces worldwide, increasingly less economical, exacerbated by low oil prices and high tax rates ranging from 62 per cent to 81 per cent paid by producers in the UKCS.

“It is vital that a high level of activity is maintained in the North Sea because, as well as its direct importance for employment and the economy, it is a testing and training ground for personnel and technology which are exported around the globe.

“Not addressing problems now could mean thousands of jobs will be lost to Scotland in the years ahead.”

Bond Dickinson, which has an office in Leeds, sponsored the survey in which 700 companies were surveyed between September and October.

The survey also highlighted the ability of the sector to create jobs, with more than half of respondents increasing headcount over the last year.