Wednesday, March 30, 2011

More oil firms review North Sea plans after tax hike

Shops dock in Aberdeen harbour Aberdeen hosts the bulk of the UK's North Sea oil industry

Related Stories

Two more major oil and gas companies are considering shelving investment projects in the North Sea in the wake of last week's tax hike.
Scottish Gas-owner Centrica is understood to be reviewing its current and future developments.
Valiant Petroleum also said it has cancelled a project worth up to £93m.
It comes after Norwegian company Statoil said on Tuesday that it has halted investments in two new oil and gas fields worth up to $10bn (£6.2bn).
'Perfectly reasonable' The Mariner field - being developed with Nautical Petroleum and Italy's ENI - and the Bressay field - owned jointly with Royal Dutch Shell - have combined reserves of 640 million barrels of oil.
Statoil is the majority investor and the operator for both fields. It has cancelled the planned award of an engineering and design contract for the Mariner field in response to the surprise tax rise.
Map showing Bressay and Mariner oilfields in the North Sea Norway's Statoil is the majority investor and operator for the two North Sea heavy oil fields
"The proposed tax change in the UK significantly impacts the economics of these projects," said Statoil spokesman Baard Glad Pedersen.
"These are challenging projects, that are more marginal economically, so we need to evaluate how this tax increase impacts them and consider how to move forward from this."
The Chancellor George Osborne called the tax rise "perfectly reasonable" in light of rising oil prices, which would boost oil companies' profits, while answering questions from the Treasury Select Committee on Tuesday.
If the oil price falls below $75 per barrel for a sustained period, he promised to reverse the North Sea tax rise and to reintroduce the tax accelerator on fuel prices.

Brent Crude Oil Futures $/barrel

Last Updated at 30 Mar 2011, 13:00 GMT Brent Crude Oil Future twelve month chart
price change %
115.26 +
Mr Osborne denied that Statoil was cancelling its investment, saying the firm "just want to talk to us about their investment plans".
He pointed out that the new combined tax rate faced by Statoil would be 62% of its UK profits, compared with a rate of 78% levied by the Norwegian government in its home market.
Oil price forecast According to Statoil's Mr Pederson, the two oilfields were first discovered 30 years ago, and were not developed up until now because the heavy crude oil they contain is expensive to extract and commands a lower price in international markets.
Statoil decided to develop the fields in 2007 at a time when the oil prices had risen substantially, making them economic to develop.
The oil price is even higher now than it was in 2007.

Start Quote

[The tax hike] was plucked out of thin air at the last minute to try and get the government off the hook”
Dame Anne Begg Labour MP for Aberdeen South
However, the company makes its investment decisions based on a long-term forecast that ignores short-term fluctuations in the oil price such as the recent run-up due to events in Libya, according to Mr Pederson.
He declined to tell the BBC what the long-term price forecast used was, and whether this was above or below the $75 threshold for the windfall tax promised by Mr Osborne.
Aberdeen rebels Meanwhile two Scottish Liberal Democrat MPs rebelled against the coalition government's North Sea tax hike when it came up for a vote in the Commons on Tuesday night.
Malcolm Bruce and Sir Robert Smith - both of whom represent constituencies in Aberdeenshire, which hosts much of the Scottish North Sea oil industry - voted against the measure.
"It's easy to look at the bottom line and say that they can afford [the tax]," said Mr Bruce, speaking to BBC Radio Scotland.
"What is not acceptable is the sudden and abrupt change," he added, claiming the government had broken a promise not to change the tax regime it made to one firm when it decided to invest in the North Sea.
But the government is "sitting down with oil companies on a field-by-field basis" to ensure that economically marginal investments are not pulled as a result of the tax decision, according to Scottish Conservative MP Mark Menzies.
The government won the vote by 334 to 13, with most Labour MPs abstaining, and only the Scottish National Party voting against as a bloc.

Start Quote

The lost trust will take a very long time to rebuild”
Malcolm Webb Oil and Gas UK chief executive
The SNP had no problem with oil and gas paying its proper share, according to MP Eilidh Whiteford, but the government needs to make sure it is not disincentivising companies that are sometimes making a risky investment decision.
Two Labour MPs, Anne Begg and Frank Doran - also from Aberdeen - opposed the measure.
Ms Begg accused the coalition government of having "plucked [the tax hike] out of thin air at the last minute" and said the consequences on the less profitable gas industry had not been thought through.
'Rethink' Malcolm Webb, head of the trade body Oil and Gas UK, called for emergency meetings over the £2bn windfall tax on the North Sea oil industry, announced in the chancellor's Budget last week.
"The move has made companies rethink their plans to step up investment in the next few years, jeopardising tens of thousands of jobs as well as indigenous oil and gas production which will likely lead to an increase in the import of these fuels," he said.
"The lost trust will take a very long time to rebuild. Meanwhile, the industry has called an emergency meeting of Pilot, the government-industry forum established to help maximise recovery from the UK continental shelf, and also with the Treasury."
Post a Comment