Trade association UK Oil & Gas fears that UK North Sea oil production is at a “tipping point” due to record low oil prices which were announced on Friday, and now faces a “day of reckoning” unless Chancellor George Osborne forsakes the fiscal regime as it currently stands and adopts a ‘friendlier’ version in the Autumn statement.
Mike Tholen, the industry group’s economic and commercial director, has reported that the current tax rates- which vary between 62p and 81p in the pound- were crippling production efforts when the oil price was at a much higher price per barrel. The recent price drop in oil down to $70 per barrel (approximately £45 GBP) has exacerbated the situation to a point where fears over investment for North Sea extraction are now strongly dominant.
Tholen said: "We are very much around a tipping point, and I think facing a day of reckoning. If we don't see swift action from the Chancellor to make a substantial change to the tax burden, we will see a lot of things start to go wrong for the industry, and we will end up in a situation where we will radically shorten the future of the industry in the UK."
The final Autumn Statement of the current parliament will be delivered on Wednesday and UK Oil & Gas as well as all other North Sea production stakeholders will hope for the removal of the Coalition’s 12% increase in tax which was introduced back in 2011.
Tholen recognises that “the challenge is that the UKCS was never an easy or cheap basin. It costs more to do things and the opportunities are smaller, the infrastructure is a lot creakier”- however the North Sea has proven optimistic for oil extraction, such as the Golden Eagle project, therefore its potential should not be undermined by high taxes.
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